Financial services firm Nomura today said the government's decision to borrow Rs 2.87 lakh crore during the first half of 2010-11 is quite large, although bond markets were expecting higher mop-up.
"In our view, even as the borrowing calendar has surprised markets positively... The absolute amount of borrowing remains large," Nomura said in a statement. The markets were expecting the government to borrow around Rs 3 lakh crore during April-September 2010, out of total Rs 4.57 lakh crore pegged for the entire fiscal.
The government generally borrows more in the first half to keep resources available for corporates in the second half, when the requirements for credit goes up due to busy season, including festivals. Next fiscal, however, the government will be borrowing only 63 per cent of its total requirement in the first half against 73 per cent this fiscal.
The government is expected to borrow more in the second half next fiscal compared to this fiscal because it believes that with global financial meltdown ebbing, corporates would have more room to raise money overseas even in the busy season.
While the government remained silent about RBI's buying and selling government securities through open market operations (OMO), Nomura said the central bank could be prompted to buy back the bonds to prevent yields from rising too sharply.
"We believe that the implicit tightening of monetary policy through rising long-term rates will likely prompt the RBI to buy back government bonds during the year to prevent yields from rising too sharply," Nomura said.
Even then, the yields will rise in a 10-year government paper from 7.76 per cent now to 8.5 per cent in the first half of next fiscal.