Higher govt borrowing may keep liquidity tight

Liquidity conditions are expected to stay tight, as the government may borrow up to Rs 30,000 crore this week.

“The repo drawdown may come down to Rs 60,000-80,000 crore as government starts spending but higher government borrowing will keep the pressure on liquidity,” said a bond trader with a primary dealership firm.

The government is scheduled to borrow Rs 12,000 crore via sale of three dated government securities this week. In addition, the government will borrow Rs 10,000 crore via treasury bills and Rs 8,000 crore via 42-day cash management bills.

Last fortnight, repo auctions at the Reserve Bank of India went up to Rs 1 lakh crore daily, as banks borrowed to tide over the liquidity shortage after corporate bodies withdrew to make advance tax payments in June.

 

More, government borrowings were slightly higher last week, with sale of four dated securities worth Rs 15,000 crore. Also, 35-day cash management bills worth Rs 6,000 crore were auctioned last week. There was some respite as the government redeemed Rs 37,000 crore yesterday on maturity of the 9.39 per cent 2011 government bond.

The interbank call money rate was 7.6 per cent, reflecting banks’ demand for funds last week. It was the same rate in the collateralised borrowing and lending obligations market. Yields on the 10-year benchmark 7.80 per cent government bond closed at 8.35 per cent on Friday, higher by nine basis points over a week.

So far this financial year, the government had borrowed Rs 1,08,000 crore via long term bond sales as compared to Rs 1,25,000 crore in the corresponding period last year. It had planned to borrow Rs 4.17 lakh crore in the entire year, of which around 60 per cent would be in the first half.