Borrowing Costs of States have shown a sudden rise
Although the Reserve Bank of India injected Rs 10 billion of liquidity through the GSap channel last week, fewer states are using the bond market; their borrowing costs have moved north as the coupon rate has increased 7% since the middle of March, which is the highest level reached.
According to an analysis by Care Ratings NSE, since the first fiscal auction on April 8, the weighted average yield on government bonds has increased by 44 basis points, an increase of 1.13%.
The agency noted that the Borrowing costs across states and maturities rose to their highest levels since mid-March, reversing the 7% drop in state government securities auctions last week, which is 24 basis points higher than the previous week.
However, before the secondary market bought up Rs 10 trillion of government debt on June 17 under the GSap (government securities acquisition programme), average costs fell 20 basis points to 6.75 % during the auction session on June 15.
The agency’s chief economist Madan Sabnavis and senior economist Kavita Chacko attributed the rise in yields to concerns about the trajectory of inflation as crude is now trading at its highest level in two years.
In addition, rising inflation is raising concerns about the RBI’s ability to maintain an accommodative monetary policy.
The spread widened by about 50 basis points at the start of April, reflecting the stability of state bond yields, economists said, adding the yields have been on the run because of the concerns over the anticipated higher supply.
At today’s auction, ten states raised a total of Rs 196 billion. Although Maharashtra accepted an additional 500 crore rupees, other states only accepted the reported amount.
Based on today’s loans, so far, total state loans this fiscal year are down 20% compared to the same period last year. So far, 18 states and Delhi have raised Rs 1239.5 crore, while 22 states and Delhi had raised Rs 155,276 crore in the previous fiscal year.
So far, 19 states and Delhi had only raised 80%, when according to the tentative borrowing calendar, 26 states and Delhi were to raise Rs 1,644 billion.
So far, fewer states have entered the market, mainly due to their lower spending during the pandemic and the use of the leeway provided by the Reserve Bank of India through easy withdrawal and the higher ways and means advances, both of which are priced at the repo rate.