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Gilts add sheen after rate cut

BS Corporate Bureau

Government security prices zoomed, responding positively to the proposal of the administered rate cut and a lower government borrowing programme in the Union Budget.

Gilt prices rallied by 50-75 paise across all maturities. In the forex market, the spot rupee strengthened marginally, while forward premiums dipped.

The finance minister has reduced the gross government borrowing programme to Rs 1,110 billion for fiscal 2001-02 from Rs 1,177 billion during the last fiscal. The net borrowing programme, however, remained almost unchanged at Rs 770 billion (Rs 763.8 billion).

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

Singh said, "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. The prudent management of the government exchequer during the current fiscal also has given confidence that the borrowing programme will be under control."

Dealers in the money market expect the cut in the administered rate to be followed by a cut in the bank rate. The treasury head of a new private sector bank said, "The market had been expecting a further bank rate cut. The budget has boosted the possibility further and hence the immediate rally."

Dealers are expecting the central bank to cut down the bank rate by one percentage point before the end of the current fiscal.

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, rise the possibility that the borrowing programme of Rs 1,11 billion can be done at a lower cost," said Singh.

Source: Business Standard

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