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Govt cuts market borrowing by Rs 12,000 cr

Monday the Reserve Bank of India said government has cancelled a bonds auction scheduled on Friday

Neelasri Barman  |  Mumbai 

The government's decision to cut the market borrowings by Rs 12,000 crore this fiscal is set to result in government bond yields falling further this week. Monday after market hours the Reserve Bank of India (RBI) said the government has cancelled a bonds auction scheduled on Friday.

“On review of the government's cash position and funding requirement, it has been decided, in consultation with government, to reduce the government market borrowing through dated securities by Rs 12,000 crore for the current financial year,” said Accordingly, the auction for dated securities scheduled on February 22, 2013 for Rs. 12,000 crore has been canceled,” said RBI in a statement.

The street views this as a positive development to keep the government's fiscal deficit under check. “This development will be viewed very positively even by the rating agencies because it demonstrated the commitment of the government to stick to the fiscal deficit target,” said Prasanna Patankar, senior vice-president at STCI Primary Dealer. According to Patankar the yield on the 10-year benchmark bond 8.15% 2022 will fall to 7.75% this week.

The yield ended at 7.83% on Monday compared with previous close of 7.84%. “The government is already sitting on cash balances so there is no need to borrow and the borrowing for the entire fiscal is through. With incremental liquidity tightening, as we go to advance tax probably we may see more Open Market Operation (OMO) purchase of government bonds,” said Patankar.

The fiscal deficit target for the current fiscal is pegged at 5.3% of Gross Domestic Product (GDP). As on February 8 government's cash balanced with RBI rose by Rs 16,676 crore to Rs 39,104 crore.

According to S Srinivasaraghavan, executive vice president and head- treasury of Dhanlaxmi Bank the yield on the 10-year benchmark may even drop to 7.70% before the Union Budget to be announced later this month.

Tuesday is a bank holiday on the occasion of Shivaji Maharaj Jayanti due to which the market will remain closed.

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First Published: Mon, February 18 2013. 20:37 IST