India to borrow extra $7.5bn through bonds

MUMBAI: India will borrow an additional 400 billion rupees ($7.53 billion) through bonds in the fiscal year that ends in March, the central bank said, roughly in line with market expectations and ending weeks of speculation.

However, the central bank also announced a larger-than-expected government borrowing plan through short-dated paper for the January-March quarter, and traders said bond yields could rise a further 8-10 basis points on Monday.

"The increased borrowing through dated securities was more or less expected. But that number coupled with the net increase in T-bill borrowing is a lot more than the market was expecting," said Nirav Dalal, president and managing director, debt capital markets at Yes Bank in Mumbai.

"I don't think the bond market is going to like it." India's fiscal position has been deteriorating as economic growth slows. Anticipation that New Delhi would borrow additional funds has been weighing on Indian markets.

The yield on the benchmark 10-year federal bond hit a three-week high on Friday as the market braced for more borrowing.

It ended at 8.56 percent after touching 8.60 percent, its highest since Dec. 7 and 2 basis points higher than Thursday's close, before the new borrowing calendar was announced.

Earlier on Friday, the government said its fiscal deficit for the first eight months of the financial year ballooned to nearly 86 percent of its full-year target.

The government is widely been expected to miss its fiscal deficit target of 4.6 percent of GDP for the fiscal year that ends in March by a full percentage point or more.

Copyright Reuters, 2011