MACRO ECONOMIC NEWS

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Wishing A Wishful Weekend Ahead

 

Best Regards

Arbind

 

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Macro-Economic News 06 Feb 2021

 

In a landmark reform, RBI allowed the direct retail participation in the government securities markets – the third nation after the United States and Brazil.

 

In the long term, this will change the way banking and payment systems function, and for sure, it would result in a positive net return (bond return higher than inflation) to the savers. There has been a long-awaited need to channelize the domestic savings that are nearly 30 percent of GDP of more than $2.8 trillion (Rs 200 trillion) per year. A simple calculation converts the govt borrowing target of Rs 12 trillion is just 20% of Indian savers of only one year and less than 10 percent demand and time liability in the Indian banks. This window will further accelerate efforts for reducing statutory capital requirement - in line with the international modern monetary practices.

 

On the contrary, retail participants, being less adroit in precise calculation and nuances of G-Sec markets, need more prudent hand-holding at this adolescent stage. Additionally, it would deepen the bond market along with a deep sense of public participation in nation-building. The natural residual effect of such noble efforts would bring vibrancy to the corporate bond market and better pricing benchmarks (a reliable yield curve). 

 

RBI has given the world a-new-hope and directionality in circumstances where the global ‘inequality virus’ is affecting every country and is creating the widest ever rifts between rich and poor. To quote ‘oxfam’ study, “billionaire fortunes returned to their pre-pandemic highs in just nine months, while recovery for the world’s poorest people could take over a decade”.  

 

Citing the dreadful divide IMF has also warned that the U.S. is facing the risk of bankruptcies and unemployment if fiscal support is not maintained while low-income countries of "lost generation" if they don't get more help. 

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