Informist, Friday, Sep 27, 2024

NEW DELHI – A day after the Centre announced it would issue bonds worth 6.61 trln rupees in the second half of 2024-25 (Apr-Mar) and stick to its Budget estimate of 14.01 trln rupees for gross borrowing, analysts continue to see a chance of the actual number being lower on account of the government's high cash balances and lower spending.

"While no borrowing cut was announced, we cannot rule out the announcement of a cut to borrowing later in the half," Nomura analyst Nathan Sribalasundaram said in a note today. According to Sribalasundaram, trends in the Centre's fiscal performance so far this financial year and the possibility of other sources to finance the fiscal deficit – such as small savings collections – exceeding initial estimates could help the Indian government cut its full-year borrowing amount later in 2024-25.

The finance ministry's decision on Thursday to stick to its full-year borrowing target has left the bond market somewhat disappointed, considering the healthy state of the Centre's finances and its large cash balance. According to latest data, the government's fiscal deficit in Apr-Jul was only 17.2% of the full-year target of 16.13 trln rupees. In the first four months of 2023-24, the fiscal deficit amounted to 33.9% of the Budget estimate. Meanwhile, its cash balances climbed to 3.8 trln rupees last week, according to an estimate by Kotak Mahindra Bank.

While the finance ministry has chosen not to deviate from the 2024-25 borrowing figure, it said on Thursday that it would raise a lower-than-expected 2.47 trln rupees in Oct-Dec through Treasury Bills. This follows a cut in T-bill issuances in each of the first two quarters of the financial year – by 600 bln rupees in Apr-Jun and 400 bln rupees in Jul-Sep. The Oct-Dec T-bill issuance figure is around 350-450 bln rupees lower than market expectations.

Nomura's view was echoed by Teresa John, economist at Nirmal Bang.

"The government has not announced any cut in the borrowing, yet there is a good chance that it could undershoot the budgeted 14.01 trln rupees supported by elevated cash balances, healthy tax collections, and slower spending. While we do expect spending to pick up with the government focus on capex, spending capacity may act as a constraint," John said in a note.

The government's borrowing calendar comes days before the Reserve Bank of India's Monetary Policy Committee announces its interest rate decision. While scheduled for Oct 9, the government is yet to announce the three new external members on the rate-setting panel. The appointment of the MPC's external members has not been a smooth process in the past, with outgoing members Shashanka Bhide, Ashima Goyal, and Jayanth Varma being appointed with a delay of several days in 2020. In fact, the delay was such that the RBI had to postpone the MPC's meeting by more than a week to the second week of October in 2020 from Sep 29-Oct 1.

While the MPC is not expected to lower the repo rate next month, the US Federal Reserve's recent 50-basis-point cut has led to greater talk of possible actions the Indian central bank might take in the coming months, with the repo rate left unchanged at 6.50% for one and a half years.

"...despite an aggressive start to the US monetary policy easing, the RBI could maintain status quo on repo rate due to near-term uncertainty on food inflation. Room for a rate cut could emerge in December policy review. We maintain a downside risk to our 10-year G-sec call of 6.75% by March," QuantEco Research said in a note on Thursday. End

Reported by Aaryan Khanna and Siddharth Upasani

Edited by Avishek Dutta

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.