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Borrowing programme high but manageable: RBI

BS Banking Bureau

Government security prices zoomed responding positively to the proposal of the administered rate cut and a marginally higher government borrowing programme. The prices rallied by Re 1 but came down by 25 paise in the second half on the back of profit booking gaining around 75 paise across all maturities.

In the forex market, spot rupee strengthened by around 9 paise against the dollar and forward premium dipped by close to 10 basis points across maturities expecting an immediate rate cut announcement by the Reserve Bank of India.

The finance minister has increased the gross government borrowing plan from Rs 1177 billion during the last fiscal to Rs 1188.53 billion for fiscal 2001-02. The net borrowing programme also remained almost unchanged at Rs 773.53 billion from Rs 763.80 billion during the current fiscal year.

The RBI does not expect the Centre to overshoot its borrowing programme in fiscal 2002. "Like this year (fiscal 2001), the borrowing programme is unlikely to cross the target. It has been kept virtually at the same level... Although it is high, we will be able to manage the borrowing programme with less problems and complications," RBI deputy governor YV Reddy said.

Describing the borrowing programme target as "realistic", Reddy said there will be less uncertainty in the markets.

S S Tarapore, former RBI deputy governor and chairman of capital account convertibility committee said: "For the first time after several years the government has been able to hold down the net borrowing programme. This is a significant achievement."

Sanjit Singh, fixed income analyst, ICICI Securities and Finance said, "Prices rallied as expectation of administered rate cut was realised. A marginally higher government borrowing programme also boosted market sentiment."

Though there was fear in the market that the finance minister may increase the borrowing programme to fight the economic slowdown, he has projected a lower figure for the coming fiscal year. The prudent management of the government exchequer during the current fiscal also has given confidence that the borrowing programme will be under control, Singh said.

Ashis Pitale, vice president, JP Morgan also voiced the same positive sentiment. "The budget has boosted the sentiment in the gilts market considerably and the rally is likely to continue for quite some time," Pitale said.

Dealers and analysts in the money market expect the cut in administered rate to be followed by a cut in the bank rate. Pitale said, "The market had been expecting a further bank rate cut. The budget has boosted the possibility further and hence the immediate rally." Analysts are even expecting a cut in bank rate by 50 to 100 basis points before the end of the current fiscal year.

Subir Biswas, country treasurer, ABN Amro Bank, however, feels that though similar borrowing programme will have no impact on the market, cut in the small savings rate followed by a possible bank rate cut will keep the market sentiment up.

Analysts, even expect the borrowing programme for the coming fiscal to sail through more comfortably during 2001-02.

"A positive interest rate outlook and a better scenario in the currency market on the back of huge foreign exchange reserves and stable petroleum prices, gives rise the possibility that the borrowing programme of Rs 111 billion can be done at a lower cost," said Singh.

Pitale said, "A more or less similar borrowing programme, cut in the small savings rate and stable forex market outlook gives the feeling that borrowings will be completed without any hassle."

Source: Business Standard

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