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Despite concerns in the bond street about the government’s market borrowing for the next financial year, experts don’t expect any major surprises in the vote-on-account on Monday.
Due to this reason, any sharp movement in government bond yields are ruled out in the near term. The movement is seen limited to +/-10 basis points from the current levels this week. In last year’s Union Budget, the government had announced a gross borrowing plan of Rs 6.3 lakh crore for 2013-14, which was Rs 30,000 crore higher than Street expectations. The net borrowing plan was Rs 4.8 lakh crore.
However, there are concerns that with the new government coming to power, there could be changes in the market borrowing programme.
“In the vote-on account, the next financial year’s net borrowing will be more or less similar to this financial year’s net borrowing. The fiscal deficit in line with the Fiscal Responsibility and Budget Management Act is likely to be 4.2 per cent of gross domestic product (GDP). When the new government presents the Budget sometime in June-July, they may revise these numbers,” said Badrish Kulhalli, head of fixed income at HDFC Life.
The fiscal deficit for the current financial year is pegged at 4.8 per cent of the GDP. The government has been committed to sticking to the target.
“Market participants will closely watch the FY15 fiscal deficit target, which will determine the size of market borrowing for the next financial year. The target is widely expected to be set at 4.2 per cent of the GDP, in line with the fiscal consolidation plan outlined in October 2012. The finance minister committed at that time to reducing the fiscal deficit by 0.6 per cent of the GDP annually,” said Anubhuti Sahay and Nagaraj Kulkarni of Standard Chartered Bank in a note to clients. Standard Chartered Bank's estimate of gross market borrowing is Rs 5.8-6 lakh crore.
Due to this reason, any sharp movement in government bond yields are ruled out in the near term. The movement is seen limited to +/-10 basis points from the current levels this week. In last year’s Union Budget, the government had announced a gross borrowing plan of Rs 6.3 lakh crore for 2013-14, which was Rs 30,000 crore higher than Street expectations. The net borrowing plan was Rs 4.8 lakh crore.
However, there are concerns that with the new government coming to power, there could be changes in the market borrowing programme.
“In the vote-on account, the next financial year’s net borrowing will be more or less similar to this financial year’s net borrowing. The fiscal deficit in line with the Fiscal Responsibility and Budget Management Act is likely to be 4.2 per cent of gross domestic product (GDP). When the new government presents the Budget sometime in June-July, they may revise these numbers,” said Badrish Kulhalli, head of fixed income at HDFC Life.
The fiscal deficit for the current financial year is pegged at 4.8 per cent of the GDP. The government has been committed to sticking to the target.
“Market participants will closely watch the FY15 fiscal deficit target, which will determine the size of market borrowing for the next financial year. The target is widely expected to be set at 4.2 per cent of the GDP, in line with the fiscal consolidation plan outlined in October 2012. The finance minister committed at that time to reducing the fiscal deficit by 0.6 per cent of the GDP annually,” said Anubhuti Sahay and Nagaraj Kulkarni of Standard Chartered Bank in a note to clients. Standard Chartered Bank's estimate of gross market borrowing is Rs 5.8-6 lakh crore.
The yield on the 10-year benchmark government bond 8.83% 2023 ended at 8.87% on Thursday compared with previous close of 8.11%. The yield rose as there are concerns about how much the government may borrow in the next fiscal.
“The supply of bonds will again start from April as a result no significant downward movement in yield is expected. That significant fall can happen if RBI announces Open Market Operations (OMOs),” said Debendra Kumar Dash, assistant vice president (treasury), Development Credit Bank.
In the post-monetary policy conference call with analysts and researchers RBI governor Raghuram Rajan had said that where the liquidity tightness is temporary, RBI will do term repos and they shall announce OMOs where there is a need to accommodate more permanent liquidity needs to meet the overall credit growth of the economy.
