The government is scheduled to table its market borrowing plan for 2HFY (October 2024 to March 2025) on Thursday. After earlier plans to borrow a little more than half of the budgeted amount in 1HFY, the 2H scale for dated securities likely to be closer to INR 6.3trn-INR6.6trn. Market participants have signalled demand for papers across the curve, with focus also on the short end, after T-bill issuances were reduced by INR 600bn in 1QFY and INR 800bn in 2Q. Any final reduction in total borrowings might be exercised in the final quarter of the year, retaining maximum flexibility in the near-term. By mid-Sep, states (and UTs) had borrowed ~INR3.3trn, less than the programmed amount for 1HFY25. Bond yields have eased in recent sessions, with the 10Y yield at more than a two and a half year low this week, tracking lower USTs, soft oil prices and expectations of a dovish policy outrun by the monetary policy committee (MPC) in October. Onshore liquidity has meanwhile tightened owing to advance tax and GST outflows, pushing call fixings to above the repo rate, attracting VRR auctions to smoothen the squeeze. With festive cash demand on the anvil, deficit conditions might prevail into Oct as well. On the policy front, new external members of the MPC might be announced ahead of the October policy review, as the four-year term of the existing three members ends this month. The US Fed’s decision to frontload a more aggressive 50bp cut in September affirms that the cycle is turning for the global central banks. At home, the RBI MPC is cognizant that the moderation in the July-August CPI inflation was on the back of an exceptionally favourable base effect, with stickiness in food inflation in fact offsetting a deeper pullback in the headline print. While October’s meet might result in a pause on rates, we expect the accompanying language to accommodate a pivot later in the year.
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