New Delhi / Mumbai: This time of year, when the Indians borrow and splurge. And the biggest borrower of them all, the government has said it needs a staggering 0.13 more than it budgeted for. It lent an extra Rs 52900 crore in the second half of the current fiscal.
Debt markets were shocked by the news and sent bond yields sharply higher demand for loans, the fear of competition for private funds as well as picks up the upcoming busy season. Fear of further hardening of interest rates could also spook the markets.
The government argued that the extra borrowing does not bloat the budget deficit, which is 0.046 of GDP in the fiscal budget.
"It is disgusting to markets," said Abheek Barua, Chief Economist, HDFC Bank.
Return to compare the 10-year paper rose 10 bps to 0.0844 after the government announced its extra loans. One basis point is one hundredth of a percent.
Total long-term borrowing through dated securities would now be Rs 2.2 lakh crore in the second half of the budget of Rs 1.67 lakh crore against the budget, the Finance Ministry said Thursday after meeting with Reserve Bank of India.
"Additional market borrowing was due to lower cash balances of the government and the lower side of the small savings," said R Gopalan, Secretary, Department of Economic Affairs.
Small savings, the net outflow of Rs 26000 crore in the first quarter of current fiscal as many bank deposits now paying 0.08 more than the rate offered by these schemes.
Pressure on yields
"Paper thin supply of hard catch," Pradeep Madhav CEO STCI Primary Dealer, the nation's largest bond house. "If the credit picks up after October, when the busy season starts, it will be additional pressure on yields, and this makes it difficult to soften interest rates," he added.
Turn of events is an industry that has been pleading for a pause interest rate hikes, worried. RBI has raised rates by 350 basis points since March of last year to combat persistently high inflation.
"Interest rates are already high and liquidity is already tight. It helps a dent in the investment climate," said Rajiv Kumar, Secretary General of FICCI.
Industrial production fell to a 21-month low of 3.3% in July amidst signs that high interest rates began to hurt demand.
The government's new borrowing binge might crowd out private borrowers, who are coming to the market in the second half.Ministry of Finance official said that the government would inform the bond buybacks on the open market as more liquidity is needed.
Higher yields also hurt banks because it has a negative impact on the value of your bond portfolio, forcing them to mark-to-market losses. Goal 5-year swap rates rose as much as 14 basis points to 7.17% per year and the rate rose 8 basis points to 7.98%.
"The timing of the announcement of a negative impact on the assessment of borrowing," said Pārtha Mukherjee, president (credit) Axis Bank.
Extra credit will further strengthen market confidence in the government deficit will not be his, despite a decline in small savings collections have a plausible explanation.
Most analysts expect the deficit to be in the range of 5.0 to 5.5% of GDP this year.
The budget estimate of Rs 24,000 crore, calculations were made in small savings funds, but money in the near 35,000 crore by the ministry official said.
"In the current budget deficit is 4.6% (GDP)," said C Rangarajan Chairman, Economic Advisory Council to the Prime Minister. It can be difficult to achieve.
Artclies Source:- http://economictimes.indiatimes.com/news/economy/finance/debt-damage-governemnt-to-borrow-rs-53k-crore-more-shocks-debt-markets/articleshow/10176737.cms
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