RBI Guv allays fears over govt borrowing in FY27, asks to focus on net number

Mumbai: RBI Governor Sanjay Malhotra on Friday sought to allay fears over the government's gross borrowing target for FY27, asking all to look at the net borrowing number instead.

The net borrowing has increased by only Rs 20,000 crore, and the growth in the net borrowing is much slower than the one in the overall budget, he said, assuring that the government's borrowing program will be conducted smoothly in the next financial year.

The high gross borrowing at Rs 17.2 lakh crore is due to higher maturities lined up in FY27, the Reserve Bank of India governor explained.

The high borrowing number had led to investor unease immediately after the budget presentation, especially due to concerns about a 'crowding out' effect, which would leave the financial system with fewer resources to lend to others.

"If the budget is going up by almost 9 per cent, GDP is expected to grow at 10 per cent. We should be really looking at net borrowing numbers," Malhotra told reporters at the post-February monetary policy press conference in Mumbai.

The government has planned to borrow Rs 17.2 lakh crore for FY27, significantly higher than the market projection of Rs 16.5-17 lakh crore, leading to a sharp rise in yields on government securities. However, on the other hand, the net borrowing by the government was Rs 11.73 lakh crore as against Rs 11.53 lakh crore, a jump of Rs 20,000 crore.

According to the RBI data, government securities worth Rs 5.47 lakh crore are lined up for maturities in FY27.

Government borrowings are a key determinant of interest rates in the economy, and a higher supply of bonds puts pressure on yields unless matched by strong demand from banks, insurers, foreign investors and the quantum also has an influence on the cost.

Even after the RBI's assurance on a smooth borrowing program, the bond market failed to cheer as the yield rose throughout the day by 10 basis points (Bps). The 10-year benchmark bond yield opened at 6.6373 per cent, and traded at 6.7363 per cent near the end of the trading session.

This rise in yields was attributed to lack of liquidity measures announced by the central bank.

"On the liquidity front, the RBI has reiterated its commitment to maintaining adequate system liquidity, providing comfort to money markets. While no OMO purchases were announced, the RBI has retained flexibility to deploy liquidity management tools as required.

“Overall, the policy outcome was well aligned with market expectations, with bond yields hardening marginally by about 4-5 basis points in the immediate reaction," said V. Ramachandra Reddy, head of treasury at Karur Vysya Bank. PTI AA Mumbai, Feb 6 (PTI) The Reserve Bank of India Governor Sanjay Malhotra on Friday sought to allay fears over the government's gross borrowing target for FY27, asking all to look at the net borrowing number instead.

The net borrowing has increased by only Rs 20,000 crore, and the growth in the net borrowing is much slower than the one in the overall budget, he said, assuring that the government's borrowing program will be conducted smoothly in the next financial year.

The high gross borrowing at Rs 17.2 lakh crore is due to higher maturities lined up in FY27, he explained.

The high borrowing number had led to investor unease immediately after the budget presentation, especially due to concerns about a 'crowding out' effect, which would leave the financial system with fewer resources to lend to others.

"If the budget is going up by almost 9 per cent, GDP is expected to grow at 10 per cent. We should be really looking at net borrowing numbers," Malhotra told reporters at the post-February monetary policy press conference in Mumbai.

The government has planned to borrow Rs 17.2 lakh crore for FY27, significantly higher than the market projection of Rs 16.5-17 lakh crore, leading to a sharp rise in yields on government securities. However, on the other hand, the net borrowing by the government was Rs 11.73 lakh crore as against Rs 11.53 lakh crore, a jump of Rs 20,000 crore.

According to the RBI data, government securities worth Rs 5.47 lakh crore are lined up for maturities in FY27.

Government borrowings are a key determinant of interest rates in the economy, and a higher supply of bonds puts pressure on yields unless matched by strong demand from banks, insurers, foreign investors and the quantum also has an influence on the cost.

Even after the RBI's assurance on a smooth borrowing program, the bond market failed to cheer as the yield rose throughout the day by 10 basis points (Bps). The 10-year benchmark bond yield opened at 6.6373 per cent, and traded at 6.7363 per cent near the end of the trading session.

This rise in yields was attributed to lack of liquidity measures announced by the central bank.

"On the liquidity front, the RBI has reiterated its commitment to maintaining adequate system liquidity, providing comfort to money markets. While no OMO purchases were announced, the RBI has retained flexibility to deploy liquidity management tools as required.

“Overall, the policy outcome was well aligned with market expectations, with bond yields hardening marginally by about 4-5 basis points in the immediate reaction," said V. Ramachandra Reddy, head of treasury at Karur Vysya Bank.