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As its cash position has got bolstered by a chunk of dividends from companies, the government has deferred its weekly borrowing of R15,000 crore from the bond market.
“On review of the government’s cash position and funding requirement, it has been decided, in consultation with RBI, to defer the auction of dated securities amounting to R15,000 crore scheduled to be held on January 17,” the finance ministry said in a statement.
While the RBI does not disclose the government’s cash balances with it, dividend payments from Coal India is said to have boosted the centre’s cash position.
On Tuesday, the government-owned Coal India declared a record R29-per share interim dividend, through which the government is expected to garner R16,485 crore and another R3,113 crore towards dividend distribution tax.
Bond yields that have already softened by 17 basis points this week owing to fall in both retail and wholesale inflation, slipped further after the postponement of the auction.
Bond traders said that the deferment is perhaps to give a positive signal on fiscal deficit at a time when the market is doubtful of the achievement of 4.8% target for 2013-14.
“I think this move was to send a positive signal on the fiscal deficit to the market given that there has been doubts expressed whether the government will meet the target,” said Manish Wadhawan, head of rates at HSBC Bank.
In the Union Budget, finance minister P Chidambaram had set the fiscal deficit target of 4.8% of GDP for 2013-14 and pegged the market borrowing number at R5.79 lakh crore to bridge this deficit.
The finance minister has many times reiterated that the fiscal deficit target is a red line the government would not breach.
If the government decides to altogether cancel the auction, the market borrowing would come down to R5.64 lakh crore for the current year.
However, traders said that bond yields will hinge on inflation now than supply. Further, by March, most market participants would begin to price in the likely market borrowing for 2014-15, dealers said.