Government's Bond Borrowing Plan To Stay On Course, Confirms Official

Despite the fact that the RBI failed to sell all the debt it offered to bidders in past four auctions, the government on Friday confirmed that the fund raising plan via bonds will remain the same. The economic affairs secretary Subhash Chandra on Friday said that the bond buying plan (raising money from public via debt) will remain the same, while it may be tweaked a bit. The central government is unlikely to cancel bond auctions despite a spike in yields as it does not want to trigger panic in financial markets, said a senior finance ministry official. Mr Chandra said the Reserve Bank of India (RBI) would engage with primary dealers and tweak the bond issuance basket to ensure auctions go smoothly. The RBI was not immediately available for comment.

"Despite the changes in (bond) yields that have taken place, we have continued with our programme on borrowing without interruption," Garg said, adding, "We don't see any advantage in postponing, reacting in an ad-hoc manner or in a manner which conveys any sort of lack of stability. We will go through our programme. We expect normal conditions to return soon."

The Reserve Bank of India (RBI) failed to sell all the debt it offered to bidders at the last four auctions, which has given rise to concerns in the government which is aiming to borrow a total 6.05 trillion rupees ($89.87 billion) in the current fiscal year.

Finance Ministry officials have asked the central bank to re-issue older bonds that are widely held by market participants, and shorter tenure bonds to ensure auctions go through smoothly, the official said.

Earlier this week, Indian bonds weakened to multi-year lows as global crude oil prices surged and local inflation data came in higher than expected.

The 10-year benchmark bond yield ended down 4 basis points on the day at 7.84 percent. It had risen to 7.90 percent on Tuesday, its highest since Aug. 25 2015.

"The RBI and government have to coordinate steps to address the dislocation in bond market. Given that projections imply a need for infusion of some durable liquidity, the RBI could carry out a few more bond purchases preferably targeted at the short-end," said A. Prasanna, chief economist at ICICI Securities Primary Dealership.

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