The Reserve Bank of India (RBI) rejected all the bids it received at the auction of the 10-year benchmark Government Security (G-Sec) and Floating Rate Bond (FRB) maturing in 2028 as market players wanted to buy these papers at higher yields.
Since the Central bank did not devolve the aforementioned auctions on the primary dealers, the 10-year G-Sec maturing in 2031 rose 11 paise to close at ₹97.51 over the previous close, with its yield declining about two basis to 6.4537 per cent.
Market players say the move to reject all the bids at the auction of the 10-year G-Sec (for a notified amount of ₹13,000 crore) and FRB (₹4,000 crore) shows that the RBI wants to maintain a tight leash on the movement of yields despite upward pressure on interest rates in the secondary debt market.
The auction of the 6.95 per cent GS 2061 for ₹7,000 crore sailed through. The RBI’s latest Financial Stability Report (FSR) observed that the quarterly weighted average cost of incremental government borrowing has inched up in line with market benchmark yield movements.
RBI has cautioned that with the second supplementary demand of grants presented in December 2021, the budgeted fiscal deficit of 6.8 per cent of GDP may come under strain.
“It is important to note that the supplementary demand for grants embeds a substantial component of fiscal consolidation in the form of retirement of high cost repayment obligations relating to Air India. The size of gross government borrowing has proceeded at a pace that suggests that budget estimates will be adhered to,” FSR said.