The recent budget has focused on supporting growth and thereby the government has announced higher than expected fiscal deficit target and gross borrowing. The Finance Minister announced higher than expected government borrowing of Rs 12 lk cr for FY22 and additional borrowing of Rs 80000 cr over the next 2 months which led to a spike in 10-year yield by nearly 18bps to 6.08% at 5 month high. The Governor’s commentary on how actively will they support bond markets to keep a check on rising in long term yield will be crucial for bond markets.
A lot of economists expect RBI policy normalization beginning with first liquidity normalization and some economists see the RBI hiking rates in CY2022. Hence commentary on how comfortable is the RBI with current liquidity surplus and liquidity management will be crucial besides how long will the RBI continue with accommodative stance. CRR now stands at 3% and CRR reversal of 100bps is effective from end Mar2021, watch out for will the RBI extend CRR dispensation at 3% beyond end March 2021.