A shortfall of revenues this fiscal year could force the government to possibly borrow more in March, while gross federal borrowing in the coming fiscal year will also be higher than in the current, Nomura said in a note.
The government was counting on proceeds of a 3G wireless spectrum auction in the current year, pegged at $7.6 billion, to bridge the fiscal gap, but officials said last week that they were unsure if the auction will take place before March 31.
"To fill the gap that has resulted from an expected delay in the auction of 3G spectrum, to 2010/11 from 2009/10, short-term borrowing through issuance of Treasury bills is possible in March," economist Sonal Varma told Reuters.
In 2009, the central bank was helped in managing the borrowing through its open market bond purchases, weak private credit demand, and unwinding of sterilisation securities, Nomura said.
Although the bank needs to withdraw liquidity in 2010, monetary policy may be forced to stay more accomodative than necessary to ensure smooth financing of the sizeable 2010/11 borrowing, Nomura added.
"We see a risk that monetary policy remains too loose for too long, boosting growth in the near-term, but fanning inflation even higher," Varma wrote, adding that another risk could be that the robust GDP growth forecast proves to be wrong.
The government will gradually wind down its growth-supporting stimulus over the 2010/11 financial year beginning on April 1, but will still need to borrow a record amount from the market, a Reuters survey of economists showed.
Monday, February 22, 2010
Govt could borrow more in FY10, FY11 - Nomura
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