“This will provide investors with an avenue to deploy their idle securities, enhance portfolio returns and facilitate wider participation. This measure will also add depth and liquidity to the G-sec market; aid efficient price discovery; and work towards a smooth completion of the market borrowing programme of the centre and states,” RBI governor Shaktikanta Das said in his policy address.
Bond market participants expect the facility to benefit insurance companies and mutual funds, even as they wait for the detailed draft directions to be issued separately. Currently, mutual funds are allowed to borrow only to meet redemptions while life insurance companies are not allowed to borrow at all, a senior member of the treasury team at a Mumbai-based private bank told Reuters. The central bank will soon announce draft guidelines for stakeholder comments.
“A well-functioning market for securities lending and borrowing will add depth and liquidity to the Government securities market, aiding efficient price discovery. It is, therefore, proposed to permit lending and borrowing of Government securities which will augment the existing market for special repos,” the RBI said in a statement.
The central bank today raised the key policy repo rate by 25 basis points, in line with economists’ expectations, and said it remained focused on the withdrawal of accommodation.
Many analysts expect that today’s rate hike is the last hike in the current cycle by the central bank.
“RBI hiked rates by 25 bps in line with expectation by 4: 2 vote in favor of hike. Core Inflation and Financial Stability concern led to “withdrawal of accommodation” stance being maintained as against market consensus. Based on RBI forward looking FY 24 inflation forecast of 5.30%, at 6.5% repo rate, the real rate is 1.25%. We believe this is the last rate hike in this cycle,” said Deepak Agrawal, CIO – Debt, Kotak Mahindra Asset Management Company.