The Hindu Business Line : Debt markets look to borrowing agenda

The markets — set on a bearish note particularly after the Economic Survey presented by the Finance Minister on Wednesday — fear an increased market borrowing programme, a hike in small savings rates and a remote possibility of the central bank tinkering with interest rates on Thursday.

The Finance Minister's latest warnings of higher interest rates due to fiscal deficit and credit pick did not go down well with the markets today.

"If the Government's borrowing programme increases from the level projected in the Interim Budget it will be alarming. It will lead to rise in the yields of gilts," said Mr Anil Ladha, Senior Vice-President, I-Sec. The Government securities' yields have risen over 0.70 per cent over the last three months. The previous government in its Interim Budget had projected a borrowing programme of over Rs 1,45,000 crore.

The market is anticipating an increase of Rs 5,000 crore to Rs 10,000 crore in the borrowing programme due to the subsidies spelled out in the Common Minimum Programme.

Added expenditure is particularly expected in the sectors of food and education.

"Any increase in the Government's borrowing programme higher than Rs 10,000 crore will see bonds tanking. The worst-case scenario would be if savings rate are raised tomorrow and the RBI also increases the overnight repo rate by 0.50 per cent," said the head of a bond house.

According to Mr M.S. Gopikrishnan, Senior Vice-President, I-Caps, RBI is not likely to hike interest rates at least until December. RBI's moves on interest rate will be more determined by the domestic inflation rate rather than the fiscal deficit.

Inflation rate is primarily determined by global oil prices over which neither the Government nor RBI has any control.