Bengaluru: An increase in government borrowing can risk flooding the debt market while making it expensive for companies to borrow, outgoing Reserve Bank of India (RBI) Deputy Governor Viral Acharya has said taking yet another indirect dig at the Centre before demitting office.
In a lecture by him, which was shared by the RBI late on Monday, Acharya said India’s borrowing relative to its output has ranged from 67 percent to 85 percent since 2000 and has outpaced many emerging markets including China.
“As more government debt floods markets, the relative safety and liquidity premium attached by investors to high-rated corporate bonds diminishes, raising the cost of borrowing especially for AAA-rated borrowers and making it relatively less sensitive to policy rate cuts,” Acharya said.
Acharya is leaving RBI on Tuesday, six months before the scheduled end of his term in office, citing personal reasons. The RBI cut the repo rate to 5.75 percent on June 6, its third cut in 2019, while also changing its policy stance to “accommodative”, after data showed the economy growing at its slowest in over four years. (IANS)