An SBI report has called for a 20 basis points (bps) increase in Reverse Repo Rate outside the Monetary Policy Committee ambit so that the Reserve Bank of India (RBI) can find buyers for flooding new debt papers. The SBI report cites massive spike in credit growth during the first half and a steeper fall in deposits and a resultant rise in term money rates, coupled with the record high borrowings, as the reasons for the benchmark rate rise.

The Union Budget 2023 has pegged the Centre’ gross borrowing at a record Rs 14.3 lakh crore and for FY22 at Rs 10.5 lakh crore, lower than Rs 13.5 lakh crore this fiscal. Together with the States, the gross borrowing will be Rs 23.3 lakh crore and net borrowing will be Rs 17.8 lakh crore. The Budget seeks to pay back Rs 3.1 lakh crore in the next financial year, up from Rs 2.7 lakh crore this fiscal. 

Given this and rising interest scenario elsewhere and along with the fact the Budget has not spoken about the government bond inclusion into global bond indices, Soumya Kanti Ghosh, the Group Chief Economic Adviser of State Bank of India, feels that the RBI cannot but hike the Repo Rate by 20 bps outside the MPC meeting because rising deposit rates means lending rates will also have to go up. Or else, banks will have to cut into their margins.