Rising govt deficits at the time when household savings are coming down is the only reason that bond yields refuse to come down because supply of govt bonds is going up at the time when demand in the form of savings is coming down
Eram Tafsir writes…..
The Indian economy would run the risk of a wider current account deficit along with its associated consequences in case the gross household financial savings net of financial liabilities continue to grow slower than the net borrowings of central and state governments plus extra budgetary resources (EBR) and the gap is funded by external sources, as per India Ratings and Research (Ind-Ra). Further, the rating agency believes that despite policy rate cut by the RBI, a slower growth of gross household financial savings net of financial liabilities compared to net borrowing of central and state governments and EBR will keep the 10-year government securities (G-Sec) yields at relatively elevated levels. For ratio of gross household financial savings net of financial liabilities compared with net borrowings of central and state governments and EBR to improve either the former has to increase or the latter has to decline.
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