Government Second Half Borrowing Calendar Sticks To The Script

The 2HFY22 borrowing throws no surprises, with gross at 5.03tn (41.7% of total FY22 borrowing pf Rs 12.1 trillion) and net at 3.77 trillion, says Madhavi Arora, Lead Economist, Emkay Global Financial Services.

In a note, she highlighted the following on the Government's second half calendar.

1) GST compensation cess related borrowings for states again get subsumed in 2H normal borrowing, implying government's own fiscal funding has de-facto been reduced by the same amount (Rs1.6 trillion).

2) The issuance pattern is fairly balanced, with 10-14yr bucket being 46.5% of issuances, while 5yr bucket sees significant supply relief. Fully Accessible Route or FAR securities (5yr, 10yr and 30yr), having no investment limit and macro-prudential restrictions for FPIs, account for 54.3% of 2HFY22 issuance.

3) With easing supply pressures, fiscal silver linings, and improving prospects in GBI inclusion, bonds could heave a sigh of relief and watch for RBI's next GSAP tranche in the upcoming policy. We think RBI will tread with more GSAPs ahead (albeit shallower amount with part/full sterilization by OMO sales).

4) Other liquidity management tools like (1) FX intervention biased in forwards, (2) partial delivery of maturing forward book, and (3) enhanced VRRRs quantum and pace/duration will continue. However these actions still reflect move towards liquidity redistribution and somewhat towards normalization but still short of liquidity tightening.