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Why Did RBI Ask States To Reduce Their Deficits? In a recent report, RBI emphasized the need for states to adopt next-generation fiscal rules, time-bound glide paths for fiscal consolidation, and rein in subsidies and freebies. While states have contained their consolidated gross fiscal deficit (GFD) within 3% of GDP and revenue deficit at 0.2% of GDP during FY23 AND FY24, they have budgeted a GFD of 3.2% of GDP in FY25. So, why is the RBI asking states to reduce their fiscal deficits? Fiscal Discipline: High deficits can lead to unsustainable debt levels, which might cause macroeconomic instability. By urging states to reduce their fiscal deficit, RBI helps ensure that government spending is sustainable. Improving Credit Rating: Reducing fiscal deficits and maintaining sound fiscal policies can improve the credit ratings of the state governments. A higher credit rating can reduce the cost of borrowing and help fund projects more efficiently. Strengthening India's Financial Position: Maintaining fiscal discipline across all levels of government supports and strengthens national economic interests. If individual states face high fiscal deficits, it may impact the country's overall sovereign credit rating, increasing borrowing costs for the central government and private enterprises. Adherence to the Fiscal Responsibility and Budget Management (FRBM) Act: The FRBM Act of 2003 sets targets for the governments to reduce fiscal deficit and public debt. If states breach these targets, it can result in penalties or reduced central transfers. Avoiding Overreliance on Borrowing and State-Level Reforms: Excessive borrowing to finance deficits could lead to a debt trap and detriment to long-term growth. RBI encourages reducing deficits and fiscal consolidation so that the states depend less on borrowing and more on internal revenue generation. These measures are critical to sustaining the growth of the Indian economy. #RBI #FiscalDeficit #EconomicGrowth #SustainableGrowth

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Harmoney proudly presents the Fixed-Income Innovation Forum 2025. An exclusive invite-only event bringing together industry leaders to explore emerging trends, opportunities, and challenges shaping India’s fixed-income landscape. As the market undergoes significant transformation driven by technology and digitization, this forum provides a unique opportunity to connect with peers, engage with key stakeholders, and gain invaluable insights into its future trajectory. • Date: 9 January, 2025 • Venue: MCA, Mumbai • Time: 4:00 PM onward Request an invite: sales@harmoney.in Aditya Mehta, CFA | Omkar Ghaisas, CFA | Amal Dani, CFA | Manoj Rane | Thomas Thees #Harmoney #FixedIncomeInnovationForum2025 #Digitization #FinTechInnovation

Bond market recap: 13 December Stay up-to-date with Harmoney’s Daily Newsletter. Here are quick highlights: •⁠ ⁠Government bond yields rose on Thursday as traders offloaded holdings ahead of Friday's bond auction, aiming to buy back securities at lower prices. November CPI met expectations and had minimal impact on gilt movements. The 10-year benchmark bond yield ended at 6.74%, up from 6.72% on Wednesday. Market turnover rose to ₹403.25 billion from ₹339.30 billion. •⁠ ⁠The interbank call money rate closed below RBI's standing deposit facility rate of 6.25% on Thursday as banks' demand for funds eased towards the end of the trading session. The one-day call money rate fell to 5.75% from 6.75%. The weighted average call rate also fell to 6.62% from 6.70%. •⁠ ⁠US treasury yields rose to a three-week high as investors considered a higher-than-expected November producer price index. November CPI met expectations, boosting bets of a Federal Reserve interest rate drop next week. The 10-year benchmark note rose 6.3 basis points to 4.334% from 4.271% Wednesday. The 2-year notes gained more than 4 basis points to 4.199%. Know more: https://lnkd.in/dzQzTUYF #Harmoney #HarmoneyNewsletter #MarketTrends

Bond market recap: 12 December Stay up-to-date with Harmoney’s Daily Newsletter. Here are quick highlights: • Government bond yields rose on Wednesday as traders were disappointed by remarks from the newly appointed RBI Governor. Additionally, a rise in the US treasury yields and caution ahead of the US CPI data contributed to market volatility and subdued trade volumes. The 10-year benchmark bond yield closed at 6.72%, up from 6.71% on Tuesday. Market turnover dropped significantly to ₹344.55 billion from ₹601.80 billion the previous day. • The call rate closed at RBI's marginal standing facility rate of 6.75%, driven by strong demand for funds from banks as liquidity tightened due to RBI delivering dollars against its outstanding forward contract sales. The weighted average call rate stood at 6.70%, slightly up from 6.67% the previous day. • US treasury yields climbed after the US Treasury Department liquidated long-dated supply, and data revealed a growing US budget deficit. The 10-year benchmark note yield jumped 5.2 basis points to 4.273% from 4.221% Tuesday. Know more: https://lnkd.in/dZEvzVmF #Harmoney #HarmoneyNewsletter #MarketTrends

Bond market recap: 11 December Stay up-to-date with Harmoney’s Daily Newsletter. Here are quick highlights: • Government bond yields edged lower on Tuesday based on expectations that the new RBI governor would lean on rate cuts starting in February. But profit sales lifted the yields from the day's lows following an intraday rise in treasury yields. The 10-year benchmark bond yield closed at 6.71%, down from 6.72% the previous day. Market turnover rose to ₹601.80 billion from ₹461.85 billion previously. • The call rate closed near RBI's marginal standing facility rate of 6.75%, driven by strong demand for funds as the liquidity surplus continued to narrow. The one-day call money rate closed at 6.74%, significantly higher than the previous 5.75%. The weighted average call rate also rose to 6.67%, up from its previous 6.56%, reflecting rightening conditions in the money market. • US treasury yields rose on Tuesday ahead of the US inflation data release and after a report on US small business confidence reached a 3.5-year high for November. Investors will keenly monitor Wednesday's CPI report for clues on the future of US inflation and subsequent Federal Reserve policy. The 10-year benchmark note yield rose 3.1 basis points to 4.23% from 4.199% on Monday. Know more: https://lnkd.in/dZtBW6tb #Harmoney #HarmoneyNewsletter #MarketTrends

Bond market recap: 10 December Stay up-to-date with Harmoney’s Daily Newsletter. Here are quick highlights: •⁠ ⁠Government bond yields dropped significantly on Monday as traders took advantage of attractive prices following Friday's steep decline while preparing for potential interest rate cuts in the coming months. The 10-year benchmark bond yield fell to 6.72% from 6.74% in the previous close. Market turnover was notably lower at ₹461.85 billion, compared to the previous ₹863.05 billion. •⁠ ⁠The call rate fell below RBI's standing deposit facility rate of 6.25% on Monday as banks' demand for funds eased in the latter part of the trade. The one-day call money rate closed at 5.75%, compared to the previous 6.00%. The weighted average call rate settled at 6.65%, down from 6.15%. •⁠ ⁠US Treasury yields rose as investors waited to see if persistently high price pressures could derail expectations of a 25 basis point rate cut by the Federal Reserve next week. The 10-year benchmark note yield increased 5 basis points to 4.203% from 4.153% Friday. Know more: https://lnkd.in/dP5qU6wt #Harmoney #HarmoneyNewsletter #MarketTrends

Bond market recap: quick highlights from last week and the week ahead. • ⁠Government bond yields were steady week on week. The 10-year benchmark bond yield rose 4 basis points to 6.7214% after RBI reduced banks' cash reserve ratio by 50 basis points to 4% on Friday. This week, foreign investors are expected to sell domestic bonds following RBI's MPC decision on Friday to hold interest rates steady. Today, the 6.79% 2034 bond will yield 6.72-6.80%. • Corporate bond yields increased by 3-4 basis points across tenures tracking government bonds following RBI's decision to maintain its benchmark interest rate at 6.50%. Last week, trade volume was low as investors avoided taking fresh bets before the monetary policy announcement. This week, it is expected to be modest as investors await the announcement of the new RBI governor. • ⁠The interbank call money rate eased on Saturday to below RBI's standing deposit facility rate of 6.25% at 6.00% amid low demand for funds from banks. It is likely to open higher than the 6.50% repo rate as banks' demand for cash is expected to grow in early trading today. Today, the call rate will likely trade between 6.00% and 6.75%. Read more: https://lnkd.in/dU8vYvYK #Harmoney #HarmoneyNewsletter #MarketTrends

Bond market recap: 6 December Stay up-to-date with Harmoney’s Daily Newsletter. Here are quick highlights: • Government bond yields dipped slightly on foreign inflows and hopes of a softer RBI policy. The 10-year bond yield closed at 6.68%, unchanged from the previous day, with turnover falling to ₹506.80 billion from ₹902.45 billion. • The one-day call money rate rose to 6.70% on Thursday from 6.40% on Wednesday, nearing RBI's marginal standing facility rate of 6.75% amid tighter liquidity. The weighted average rate increased to 6.59% from 6.42%. • US treasury yields were mostly flat as investors digested slightly higher jobless claims data. The 10-year benchmark treasury yield fell 2 basis points on Thursday to 4.182%. Know more: https://lnkd.in/gThM9gqW #Harmoney #HarmoneyNewsletter #MarketTrends