Government to borrow Rs 3.68 lakh cr in first half of FY15

This is 61.6 per cent of the full-year target, Economic Affairs Secretary Arvind Mayaram says

In the first half of 2014-15, the government would borrow a gross Rs 3.68 lakh crore, 61.6 per cent of the full-year target, Economic Affairs Secretary Arvind Mayaram said on Friday.

“This (the market borrowing plan) is in line with fiscal correction by the government. We are confident the borrowing programme will be conducted smoothly. We have assessed demand from banks, which is robust. This year, the borrowing programme was conducted smoothly. The fiscal deficit target will be met,” Mayaram said.

The government will borrow an average Rs 17,000 crore a week in April and May, against market expectations of about Rs 18,000 crore. The first auction will start next week, while the last auction for the six-month period will end in the week beginning September 22. Each week, four bonds (long-term as well as short-term) will be auctioned.

In the interim Budget for 2014-15, the Congress-led government had announced it would raise a gross Rs 5.97 lakh crore through bond sales during 2014-15.

“The borrowing for the first half was in line with market expectations, due to which the movement of yields will be range-bound. Now, the bond market is awaiting the outcome of the monetary policy next week. If the guidance is hawkish, yields might rise from current levels. The broad range for the 10-year benchmark bond next week is 8.75-8.95 per cent,” said Dwijendra Srivastava, head of fixed income, Sundaram Mutual Fund.

The Street expects the Reserve Bank of India (RBI) to keep key policy rates unchanged at its policy review on April 1.

For 2014-15, inflation-indexed bonds will also be part of the government’s borrowings. “Inflation-indexed bonds should be made a part of the small savings scheme for retail investors. It should not be a bond for banks because that way, there is no hedge for banks — if we take it on the asset side, we have nothing on the liability side, and this will move in a similar fashion,” said Mohan Shenoi, president (group treasury and global markets), Kotak Mahindra Bank.

Meanwhile, the yield on the benchmark 10-year, 8.83 per cent government bond closed at 8.8 per cent on Friday, compared with its previous close of 8.82 per cent.

Yields fell, as the government’s borrowing plans were in line with market expectations. This financial year, yields have risen 85 basis points.