 "Govt to borrow Rs 2.4 lakh cr through bonds in H2FY15: Mayaram")
The borrowing for the second half was estimated at Rs 2.48 lakh-crore by the Street. Overall gross market borrowing will be less than the budgeted Rs 6 lakh-crore.
Average weekly borrowing will be Rs 14,000-15,000 crore in the second half, Mayaram said. The government expects substantial cash surplus by the end of the year and will undertake “substantial” switch or buyback operations of bonds, he said.
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The borrowing programme is scheduled to end by mid-February.
Mayaram also said the fiscal deficit target of 4.1 per cent of gross domestic product (GDP) for this year has been retained. The finance secretary pegged GDP growth for 2014-15 in the range of 5.7-5.8 per cent.
Mayaram also said that in the third quarter there will be no additional borrowing through treasury bills (T-bills). This means T-bills maturing in the quarter will be rolled over. According to Mayaram the government and the Reserve Bank of India will bring medium term debt strategy paper.
A reduction of Rs 8,000 crore in borrowing is expected to help the bond market next week, coupled with positive sentiments created due to Standard & Poor’s (S&P) raising credit rating outlook for India. In fact on Friday most of the rally on Friday was due to S&P raising credit rating outlook and an anticipation of cut in government borrowing.
The yield on the 10-year benchmark bond ended at 8.44 per cent on Friday, against the previous close of 8.49 per cent, a drop of 5 bps. Badrish Kulhalli, head of fixed income at HDFC Life, said, “The full-year borrowing will be at Rs 5.92 lakh-crore as against the Rs 6 lakh-crore budgeted earlier. Bond market did see some gains after the S&P outlook changed. Next week, we may see a muted reaction.”
The government was scheduled to borrow Rs 2.32 lakh-crore in the second half of 2014-15. But in the first half, borrowing was trimmed by Rs 16,000 crore, expected to happen in the second half beginning October.
During the first half, the government had decided to borrow less, though the figure for the year’s overall borrowing was altered. The decision was taken by the government after the Reserve Bank of India (RBI) transferred a surplus, amounting to Rs 52,679 crore, for the year ended June 30, 2014, to the government. It was the highest RBI has given the government and was 60 per cent more than what was transferred the previous year.
Some experts said the yield might fall by a few more basis points next week. “The broad range for the 10-year bond yield is seen at 8.35-8.40 per cent next week,” said N S Venkatesh, executive director and head of treasury at IDBI Bank. Venkatesh added that sentiments will continue to remain positive after the S&P 's decision.
But week is short for the bond market due to holidays beginning Thursday. The next trigger for the bond market is RBI’s bi-monthly monetary policy review on Tuesday.
Insurance sector officials said the bond market might exercise some caution till the views of RBI Governor Raghuram Rajan on inflation are known, during the monetary policy on Tuesday. The Street does not expect any action on the rate front in this policy.