The Reserve Bank of India (RBI) may go slow in the government borrowing programme for the time being, says ICICI Securities and Finance Company (I-Sec). I-sec expects an auction in this week, but feels there would be a long gap after it.
In its weekly report Mark to Market, the firm says, "The central bank is expected to transfer its annual profits, expected to be in the Rs 8,000-10,000 crore range, to the central government by the third week of August. This is expected to bring the ways and means advances (WMA) balances substantially below the Rs 10,000 crore mark, thereby postponing the next auction (after the likely auction in the current week) for several days."
The WMA figure as on July 27 stands at Rs 4,715 crore down from Rs 11,289 crore a week back. However, according to the I-Sec estimation, the coupon payment and redemption of government security as well as salary payments to the central government employees since then must have pushed up WMA close to Rs 16,300 crore which might force the RBI to conduct an auction during the week, but is expected to pause for some days because of the fund transfer from the bank to the government.
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The apex bank, however, has been very aggressive in the current fiscal so far completing more than 59 per cent of the gross government borrowing programme of Rs 1,19,770 crore. This has reduced the absorptive capacity of the market notwithstanding the liquidity flush. However, the transfer of surplus fund from the RBI to the government will help prices to rally once gain, I-Sec expects.
"Liquidity position is also expected to benefit from the surplus-fund transfer. The likely large gap between the auctions will provide market with a much-needed breathing space towards absorbing the supply of gilts and is likely to lead an upswing in prices," I-Sec says in the report.