India central bank governor has urged investors not to worry as the government's massive debt pile is forecast to grow further as the country attempts to recover from severe lockdowns during the depths of rapid COVID-19 infections last year.
India's government wants to borrow 12.06 trillion rupees ($166.52 billion) in the year that starts April 1, throwing the country's bond market into a sell-off on concerns of a sea of government bonds crowding out private borrowers.
But the Reserve Bank of India (RBI) Governor Shaktikanta Das told news channel CNBC-TV18 not to fret because the central bank, which handles the government's borrowing needs, has everything under control.
"The market should trust the RBI," Das said speaking after a review of monetary policy minutes released on Wednesday, adding that a recovery in the economy could ease the heavy demands from the government.
"I think our forward guidance has been much more explicit than it has been ever before," Das said. "There are some subtle messages also which the market should read."
Investors want more than lip service, however.
Suyash Choudhary, head of fixed income at IDFC Asset Management, said one of the central bank's main tools is to talk to the market. He said even after recent guidance from Das, there needs to be more communication.
"I would think a reiteration is helpful," Choudhary said.
India's benchmark interest rate, the repurchase rate, is 4%, as lower rates could bring on higher prices if it allows borrowing money at low rates. The central bank needs to keep a wary eye on food prices and other basics as well, even though the economy contracted nearly 7% in the 2020 calendar year because of COVID-19 lockdowns.
DBS Group Research economist Radhika Rao said that there are signs of a recovery in India in early 2021, but much depends on sustained higher public spending that can also stoke inflation.
