The Reserve Bank of India (RBI) this week announced the auction of central government bonds maturing between three and 30 years, with the longest tenure carrying the highest interest rates.
The interest rates and the maturity period of the four fixed-coupon bonds (CGs) announced Monday are 7.17 per cent for the bond maturing on April 17, 2026, 7.18 for the one maturing on April 17, 2030, 7.24 per cent for July 24, 2037, and 7.34 per cent for June 12, 2063.
Unlike the weekly auction of state development loans (SDLs) or state government bonds announced on Fridays, CGs are auctioned at irregular intervals. The bidding time for these bonds began at 7:30 PM on August 28, 2023, and will close at 8:00 AM on September 1, 2023. The allotment will be done on the same day, while the settlement date is September 4, 2023.
Those planning to buy these bonds through the unified payments interface or UPI can do so by 8:00 AM on September 1, 2023. For net banking, the end time is 11:30 PM on August 30, 2023.
Commenting on the G-Sec issuance, Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP, a financial advisory firm, says, “The government of India continues with its intended long-term borrowing strategy in G-Sec (government securities) auctions. Out of the total borrowing amount of Rs 39,000 crores, Rs. 24,000 crores are above 10 years.”
Srinivasan adds that “Large investors, like insurance companies, pension and provident funds, prefer long-tenor instruments. With the reduction in the borrowing amount of SDL every week, it is expected that the auction will sail through smoothly with a large investor appetite.”
Inflation Concerns
While RBI has paused the repo rate hike in its two consecutive bi-monthly monetary policy committee meetings, it has not ruled out further rate increases in the future, noting that it will keep a close watch on the country’s inflation situation before taking that call.
The successive repo rate hikes in the last financial year have pushed the bank lending rates significantly higher for retail customers, triggering concerns that it may slow down growth.
Also, the high CPI inflation due to the skyrocketing prices of vegetables and essential food items may have forced many retail investors to keep away from money markets as inflation eats into their income and savings.
