How RBI Controls Inflation And India’s Govt Debt | How India's Economy Works | The Core #RBI #News

[00:00:00][Music] For developed countries, for US, the balance sheet becomes compressed because of unconventional monetary policies, buying and selling of bonds to influence the interest rate. Second, in India, the primary reason is because many times the issues of government bonds go unsubscribed [Music] and primary dealers are forced to buy them. Eventually, RBI would pick up that slack through open market operations and bring those securities back on its balance sheet. So that is also one of the reasons why we see the proportion of domestic debt in RBI balance sheet has gone up over the years. Because of this liquidity management and the fact that the government bond issues kind of go unsubscribed many times. Not completely but at least partially. So one thing is there is always a mismatch between what the government is ready to pay in terms of interest and what the private investors demand as interest. So private investors are also kind of discounting what's going to happen in the future. So if they see that the borrowing program is kind of, you know, doesn't give them the full picture?

[00:01:23][Music] They would expect that eventually the government will borrow more, and there for them, the interest rate risk is higher, and there for them, they want the interest [Music] rate to increase to compensate for that, but of course, higher interest rates would mean higher interest rate expenses for the government, and the government doesn't like it.

[00:01:46]So this mismatch is definitely there that leads to a you know under subscription. Now US Federal Reserve The US Government Day is never under subscribed because the whole world basically buys US Government Day. So that's one of the big advantages that the United States government has that it never eventually has to resort to any kind of direct or indirect monetization of its deficit. Because the dollar being an international reserve currency, there are huge dollar reserves all across the world and countries, central banks, even RBI, for that matter, are looking to invest these reserves into some interest-bearing assets and there are many other things they would also diversify in terms of foreign exchange currency. They might by government day from let's say European Union because that's also so there are in economics we call these [music] as safe asset creators. So most of the developed country developed country central banks [music] and governments are safe asset creators.