Informist, Monday, May 6, 2024

--Econ secy: Buying back gilts to ensure efficient cash mgmt

--CONTEXT: Govt to buy back 3 gilts worth 400 bln rupees on Thursday

By Krity Ambey

NEW DELHI – The government has decided to buy back 400 bln rupees worth of three gilts to ensure efficient cash management, Economic Affairs Secretary Ajay Seth said. "There is no other policy or operational consideration," Seth told Informist.

The Reserve Bank of India will conduct an auction to buy back the bonds on Thursday. At the auction, the government will buy back the 6.18%, 2024 bond, the 9.15%, 2024 bond, and the 6.89%, 2025 bond. Since the three bonds are maturing within the current financial year – two of them in November, and one in January – the buyback will not have any fiscal impact.

However, as the buyback will bring forward the repayment, it will reduce the government's net market borrowing in Apr-Sep to 5.37 trln rupees from 5.77 trln rupees. As per the borrowing calendar for Apr-Sep, the government is set to borrow 7.50 trln rupees on a gross basis, which includes repayment of 1.73 trln rupees. With this buyback, the repayment for Apr-Sep amounts to 2.13 trln rupees.

The government has already announced lower-than-usual market borrowing in the first half of the year for better cash management; it will borrow 53.1% of the gross market borrowing target of 14.13 trln rupees for 2024-25 (Apr-Mar).

The government has kept borrowing in the first half lower than usual to optimise the cash management system, Finance Secretary T.V. Somanathan had said after the release of the borrowing calendar for the first half of the year. "Slightly lower first-half borrowing is to optimise our cash balance and reduce our interest cost," Somanathan had said.

Typically, the government borrows about 56-58% of its gross market borrowing for the year in Apr-Sep. Last year, the government had borrowed 57.6% of its full-year target in Apr-Sep.

Bond dealers, too, see the buyback as a cash management move. They also expect short-term bond yields to come down and the yield curve to steepen after the buyback. This is the first time the government is using its cash surplus to buy back securities since March 2018. End

Edited by Avishek Dutta

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