The government today said it will convert market stabilisation (MSS) bonds worth Rs 45,000 crore into regular debt to finance extra expenditure incurred to push the economy during slowdown.
The government will amend its memorandum of understanding with RBI in this regard and insert a clause to go for the conversion, a senior Finance Ministry official said.
"We will go for what is technically called desequestering of MSS bonds," the official said.
MSS bonds, used to absorb excess liquidity to tame inflation earlier, were sequestered or kept in a separate entry, but a portion of it will now be converted into normal market borrowings.
This kind of conversion would not jack up interest rates as there would not be additional market borrowings, analysts said.
At a separate function ICICI CEO and MD K V Kamath said when there is extra borrowing, it affects the market.
"If once there is clarity where the borrowing is done from, then there can be a decision on which way the interest rates go," he said.