Borrowing calendar to be finalised on March 29

Officials from the Reserve Bank of India (RBI) and the finance ministry will finalise the borrowing calendar for the next financial year on March 29. This is amid expectations the exercise will be front-loaded.

This means the goverment will schedule a major part of borrowings in the first half of the financial year. This eases pressure on liquidity for borrowing by the private sector in the second half of the financial year.

“We have not decided whether the borrowing programme will be front-loaded like last year. At present, all options, of borrowings being front-loaded, back-loaded and evenly spread out throughout the year are open. The decision will be taken after taking the views of all concerned,” said a senior finance ministry official.

The official said the requirement of government funds was just one input. “The other important points are the expenditure pattern of states and the private sector, repayment of loans, expected bond yields, market liquidity and inflation,” he said.

The Centre’s gross borrowings are budgeted at Rs 4,57,000 crore, Rs 6,000 crore higher than this year (a record). On a net basis, the government will borrow Rs 3,45,010 crore in 2010-11, compared to Rs 3,98,411 crore this year. This year, the government completed two-third of its borrowing in the first half of the financial year to avoid putting pressure on fund-raising by the private sector.

The market expects the government to follow a similar strategy next year too as credit demand is low at the moment and is expected to pick up in the coming months. Besides, unlike last year, the tools available are fewer as the balance under the market stabilisation scheme was estimated at 7,737 crore on March 5, as against 88,077 crore a year ago.

High borrowings and expectations of monetary tightening in the wake of higher inflation saw the yield on the benchmark 10-year government paper reaching a 17-month high of 8.02 per cent last week. Traders are not ruling out the yield touching 8.5 per cent in the weeks ahead.

Inflation is widely expected to reach double digits next month, compared with 9.89 per cent in February, raising expectations of RBI increasing policy rates when it announces its annual policy on April 20.

“It (the yield) will go around the 8.5 per cent level before peaking, but it is tough to predict the time-frame. Once auctions start, yields may go up. But without supply, you are not going to see too much price action,” said a senior executive at ICICI Securities Primary Dealership.

Today, the yield on the benchmark paper fell to the lowest in a week as traders sought to cover short positions following the recent sell-off.

The yield on the 6.35 per cent security maturing in 2020 hit a low of 7.93 per cent and closed at 7.95 per cent. It has been around 8 per cent for a week and breached the mark last week to touch 8.02 per cent.