Bond yields moved up after the Finance Minister, Mr Pranab Mukherjee, announced the Government's borrowing programme in the Budget, on fears of an oversupply of Government securities.
The Government's net borrowing for 2012-13 is estimated to be Rs 4.79 lakh crore. This along with cash management bills of about Rs 90,000 crore would take the gross borrowing to around Rs 5.69 lakh crore. This is higher than in 2011-12, when the net borrowing programme according to the annual Budget was estimated at Rs 3.43 lakh core, and Rs 15,000 crore was proposed to be financed through treasury bills.
Market reactions
Mr N.S. Venketash, Chief General Manager and Head, Treasury, IDBI Bank, said that though yields on the benchmark 10-year bond could touch 8.45 per cent by March-end, they could start easing by April.
“From April, liquidity will improve and core inflation will start trending downwards. So there will be room for the RBI to cut rates,” he said.
Mr Sandeep Nanda, Chief Investment Officer, Bharti AXA Life Insurance, said, “The net borrowing figure of Rs 4.8 lakh crore is almost 10 per cent higher than last year's and the gross borrowing of Rs 5.7 lakh crore is approximately higher by 12 per cent than last year. This would impact the Government bond yields negatively. We think that the RBI will have to do open market operations next year to support the Government-borrowing programme.”
According to Mr Pawan Bajaj, General Manager, Treasury, Bank of India, the market was expecting Government borrowing to be around Rs 5.2 lakh crore. But the Budget estimates exceeded the expectation by almost Rs 50,000 crore. Going ahead, borrowing could increase. Given the price of crude oil and the recent measures taken by the Reserve Bank of India, the chance of a rate cut in April looks fifty-fifty, against an earlier expectation of a definite reduction in rates.