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The government must adhere to the budgetary consolidation roadmap; inflation, bond yields and borrowing costs to trend downward: RBI governor

Reserve Bank of India (RBI) Governor Shaktikanta Das (RBI) on Monday (February 12) expressed confidence that the central government will stick to its fiscal trajectory of bringing the deficit below or at 4.5% of levels by the end of the financial period. year 2025-26.

On the credibility of the government’s fiscal consolidation plan, Das said categorically: “The market was expecting 5.2%, 5.3% but it is 5.1%.” So I think there is every reason to believe that the government will adhere to the path of fiscal consolidation. , whether it’s 30, 40, 50, we wouldn’t want to comment on that.”

Speaking to reporters after the central bank’s usual post-budget board meeting with the finance minister in New Delhi, the governor said he also expects the reduction in government borrowing to FY25 helps stabilize and moderate inflation.

“…a lower amount of borrowing, therefore, I would say it induces growth and it has a positive impact, positive in the sense that it would help stabilize inflation, to what extent it would help stabilize , I wouldn’t want to quantify it, but it helps stabilize inflation and should help moderate inflation levels,” Das said.

When asked why government interest payments continue to show an upward trend, the governor explained: “Interest payments, as a quantum, are linked to bond yields…so in the future when inflation is brought under control I think bond yields will fall and government borrowing costs should also fall, the 10 year bond yield has started to weaken anyway, so than that of 5-year bonds. The majority of public borrowing is located in these two tranches.

Despite a gross borrowing target on the market below 14.13 lakh crore for FY25, the government’s interest costs for the next financial year are higher than the current financial year at almost 12 lakh (11.90 lakh). In other words, interest payments represent more than 84% of government borrowing from the market for FY25 or 70% of Budget deficit of 16.85 lakh crore.

“When inflation is high, the central bank must take monetary policy measures by increasing rates, so naturally public borrowing done during this period, the cost will be higher, but as we move forward, while the inflation has started to moderate, as inflation moderates, logically, The last point will be where the bond yield will also fall,” explained the RBI governor.

News Source : www.cnbctv18.com

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