The borrowing programme is clearly in line with the market expectation. We expect interest rates to be stable for now, but there could be hardening of rates in December, when we expect inflation to peak, said S Srinivasa Raghavan, vice-president & head of treasury, IDBI Gilts.
Raghavan also noted that the held-to-maturity (HTM) may be increased anytime soon, thereby providing relief to bond yields.
The HTM issue is being widely discussed by the RBI and higher authorities and should happen anytime soon, he said.
In the past few weeks, the indication of a rise in the HTM limit for banks has helped yields to remain stable on a view that it would enable banks to buy more bonds and help tackle the massive borrowing programme in 2009-10.
India is planning to sell Rs 1, 23,000 crore of bonds during the second half of the financial year with a notified amount of Rs 92,500 crore for the auction of treasury bills between October 1, 2009, and December 31, 2009.
The Budget for 2009-10 had set the borrowing target at Rs 4, 51,000 crore, out of which the government has already borrowed Rs 3, 23,000 crore, including Rs 28,000 crore through de-sequestering of MSS bonds.
In July 2009, finance minister Pranab Mukherjee had forecast the deficit this year will widen to 6.8% of gross domestic product.
In a bid to tackle this huge fiscal deficit, the government announced a massive government programme. The RBI noted that as in the past, the central government or the central bank will continue to have the flexibility to bring about modifications in the calendar in terms of notified amount, issuance period and maturity, keeping in view the emerging requirements of the government, market conditions and other relevant factors after giving due notice.
However, it also said that the central bank would conduct open market operations during the second half of the current fiscal as and when considered necessary.
It may be recalled that since February 19, 2009, the RBI has been buying government securities under its open market operations through an auction-based mechanism for more effective liquidity management, it said.
On March 26, 2009, RBI had announced its intention to purchase an indicative amount of Rs 80,000 crore under its open market operations during the first half of 2009-10.
During the first half of the current fiscal, the RBI has purchased government securities amounting to Rs 57,487 crore through the auction route.The factors to look out in the markets are the movement in money market rates and the current account balance for the first quarter, said a dealer.