RBI says it will ensure smooth Govt borrowing

The Reserve Bank of India (RBI) will ensure the government's market borrowings in the current and next financial years are as smooth as possible, deputy governor Shyamala Gopinath said on Monday. The central bank would also buy bonds from the market as and when necessary, Gopinath told reporters in Mumbai. "From the market perspective, what is necessary is that we do the market borrowing in a non-disruptive way. We will ensure that this year market borrowing and the next is done in a smooth manner," she said. The Government may announce its borrowing calendar for the next fiscal year by early next week. The Centre may announce a borrowing of Rs 2.2 lakh crores for the first half of the year, according to reports. The February interim budget had a estimated borrowing of Rs 3.6 lakh crores for the next fiscal year. Including the last auction that is scheduled this week, the Government will raise close to Rs 2.6 lakh crores in the current fiscal year. The Government was able to sell only Rs84bn worth of bonds out of the scheduled Rs100bn auction on Friday. Meanwhile, the benchmark 10-year bonds fell for a third day today on speculation that demand for existing securities will ebb as government steps up market borrowings to fund economic stimulus. Yields on benchmark notes due 2019 increased as the government prepares to sell Rs120bn of debt this week. In addition, 17 states are planning to auction Rs50.5bn of 10-year securities, according to the RBI. Bond prices are lower because debt auctions scheduled for the week will boost supply, according to a dealer. The yield on the 6.05% note due February 2019 added 12 basis points to 6.64% as of 10:15 a.m. in Mumbai, according to the RBI's trading system. That is the highest since March 12. The price fell 85 paise to Rs95.75. The Government will sell Rs70bn of the 6.05% bonds due 2019 and Rs50bn of the 7.27% bonds maturing in 2013 at an auction on March 26, the finance ministry said last week. State governments will sell debt on March 25. The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, increased. The rate, a fixed payment made to receive floating rates, climbed to 5.32% from 5.29% at the end of last week.