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The government has decided to borrow less for the first half of the financial year, though the figure for the year’s overall borrowing has not been altered. This has been done by reducing the bond auction amount by Rs 2,000 crore every week till September.
The decision comes after the Reserve Bank of India (RBI) transferred a surplus amounting to Rs 52,679 crore for the year ended June 30 to the government.
On Thursday, too, the auction amount was cut to Rs 8,000 crore, compared with the Rs 14,000 crore announced earlier. The move is seen as positive for the bond market, beside improving the liquidity scenario.
“The rally in bonds had already happened. Yields might drop by another five basis points next week, due to the cut in auction amount,” said K Ramanathan, chief investment officer at ING Investment Management.
The yield on the 10-year bond ended at 8.52 per cent on Thursday, compared with the previous close of 8.54 per cent.
The total borrowing requirement for the government in 2014-15 had been budgeted at Rs 6 lakh crore or 4.7 per cent of gross domestic product. The net market borrowing of Rs 4.61 lakh crore had been budgeted to finance 86.8 per cent of the fiscal deficit.
Government balances with RBI were Rs 10,999 crore.
By the issuance calendar issued by RBI in March, the government was expected to borrow Rs 14,000 crore every week in August-September and the total amount of bond auction was pegged at Rs 3.68 lakh crore in the first half of the financial year. The government has decided to trim even the weekly auction of treasury bills for the remaining part of August and September. The cut is Rs 1,000-2,000 crore. The decision comes at a time when, due to liquidity tightness, overnight rates are hovering much above the repo rate of eight per cent.
“The reduction in the auction of treasury bills will help to bring overnight rates close to the repo rate. This is something even RBI wants,” said the head of treasury of a large state-run bank.
