RBI Should Start Issuing Floating Rate Bonds

Considering the demand-supply mismatch in the bond market, RBI should start issuing floating rate bonds (FRBs), believes Amit Tripathi, president and CIO—fixed income, Nippon India Mutual Fund.

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He tells Christina Titus that FRBs are the best asset-liability management products that banks can own. Excerpts:

As the final GST reforms have been announced, what is the market inferring from it?

The revenue implication of ₹48,000 crore turned out to be lower than the market expectation, which led to a fall in yields. The small extrapolation from FY24 to FY26 will not be a worry for the market.

Further, the tweaks in GST slabs will have a greater impact on inflation than earlier anticipated. GST on regular consumables and other items like packaged food, which have a meaningful weightage in the CPI basket, has been reduced to 5% from 18%. Therefore, the expected impact on headline inflation could be as high as 70-80 bps compared to 40-60 bps estimated earlier. On GDP/aggregate demand, one can expect a net positive impact, though there are many other moving parts there.

With the bond market grappling with weak demand-supply dynamics, how do you see this panning out?