India Bond Yields Steady, Traders Await Clarity On Fiscal Impact

Monday,   23-May-2022   01:58 PM (IST)

Indian government bond yields were trading little changed in a choppy session, as the market awaited clarity on how the government would meet its revenue shortfall after cutting the federal excise duty on gasoline and diesel. The benchmark 6.54% bond maturing in 2032 was at 94.37 rupees, yielding 7.36%, as of 1:00 p.m. in Mumbai against 94.40 rupees, yielding 7.36%, on Friday. The Indian rupee was at 77.61 to the dollar from 77.55 in the previous session. India will stick to its fiscal first-half borrowing calendar for now and will assess prospects of additional debt sale this financial year after assessing the tax revenue trend and exploring possibilities of “expenditure compression”, a person aware of the matter said today. India plans to borrow a record 14.31 trillion rupees in this financial year. The comments come after the government, over the weekend, cut the federal excise duty on gasoline by eight rupees per litre and that on diesel by six rupees a litre to tamp down inflationary pressure. Finance Minister Nirmala Sitharaman wrote on a twitter post that the move “will have revenue implication of around one trillion rupees per year for the government.” The finance minister urged all state governments, especially those which did not reduce respective fuel excise tax rates when New Delhi had cut them in November, to follow the federal government’s current move. Bloomberg reported that the government is likely to raise the shortfall of one trillion rupees through bond issuances in the year, while Reuters reported the government is planning to spend an additional two trillion rupees this year to lower the impact of inflation, over and above the current excise duty cut. Earlier this month, the nation’s rate-setting Monetary Policy Committee raised the key repo rate by 40 basis points, its first such move in nearly four years, in an unscheduled meeting. The move was followed by India's retail inflation breaching the RBI's upper tolerance level for the fourth straight month, with the reading in April climbing to 7.79%, the highest in nearly eight years. The benchmark Brent crude oil contract was 1.1% higher at $113.80 per barrel. Higher oil prices pose inflationary pressures on India what imports nearly 85% of its crude oil needs.