India’s cash surplus of 1.3 trillion rupees ($24 billion) and efforts to clamp down on spending will help it keep to its borrowing target for the year to March, said a government official with knowledge of the matter.
The Ministry of Finance, which has completed 89 percent of its record 5.7 trillion rupee borrowing, will refrain from breaching that target, the official said, asking not to be identified because the information isn’t public. Any additional obligations, if required, may not exceed 200 billion rupees, according to the official.
A reduced possibility of new supply may help bonds extend gains. India’s 10-year bonds rose for a ninth day today, the longest winning run since November 2009. At its last policy review on Dec. 18, the Reserve Bank of India cited “large” government balances as one of the reasons for a squeeze in cash availability. The overnight interbank borrowing rate, a gauge of funding availability, touched a nine-month high of 10 percent this week, according to data compiled by Bloomberg.
“There is a liquidity crunch right now as the government is spending very slowly,” Vivek Rajpal, a Mumbai-based strategist at Nomura Holdings Plc, said in an interview today. “Since the government’s cash position is pretty comfortable, the need for more borrowing will be limited.”
The finance ministry deferred a debt auction previously scheduled for this week after reviewing its cash position, according to a statement on Dec. 31. The government will instead offer to sell 120 billion rupees of notes in the week ending Feb. 22.
Lenders borrowed an average of 1.2 trillion rupees a day from the central bank’s repo window last month, the most since March, reflecting the cash shortage in the banking system. The government is asking ministries for details of the money they have spent before allocating more funds, the official said.
The government plans to keep its revised budget deficit target of 5.3 percent of gross domestic product for the financial year ending March 31 and pare it by 0.5 percentage point in the next fiscal year, the official said. The fiscal deficit was 5.8 percent in the last fiscal year.
Standard & Poor’s and Fitch Ratings cited the shortfall and slowing growth as they lowered their outlooks for the sovereign rating this year, pushing the nation a step closer to junk rating. Both companies rank India’s debt BBB-, the lowest investment grade.
India’s deficit was 4.13 trillion rupees in the first eight months of this fiscal year, or 80 percent of the annual target, according to a statement on the website of the Controller General of Accounts.