Govt may cut borrowings by Rs 50-75K cr in FY25 Budget: Axis Bank treasurer | Economy & Policy News
Gambhir sees shorter-term bonds as more attractive as the yield curve is flat, with hardly any difference between the yield on the 1-year and longer-duration securities. (Photo: Shutterstock)
India may cut its current year’s gross market borrowings in the final budget next week following a better-than-estimated surplus transfer from the central bank and amid strong revenue collections, the treasury head at Axis Bank said.
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“Revenue receipts and capital receipts, (and) especially the central bank dividend, have been much higher than what was estimated in the February budget,” Neeraj Gambhir, group executive and head – treasury, markets and wholesale banking products, told Reuters on Monday.
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Accordingly, the final budget could see the gross borrowing for the financial year 2024-25 come down by Rs 50,00-75,000 crore ($6-9 billion), Gambhir added.
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He sees room for a 20-basis-point reduction in the deficit target after the Reserve Bank of India (RBI) transferred a record surplus of Rs 2.11 trillion, more than double of what was budgeted. The deficit for the previous year stood at 5.6 per cent.
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In the interim budget, the government announced a gross borrowing of Rs 14.13 trillion, with a fiscal deficit target of 5.1 per cent of the gross domestic product (GDP). The final budget will be tabled on July 23.
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If the government cuts supply by more than Rs 50,000 crore, the benchmark yield could drop to over two-year lows, testing 6.85 per cent-6.90 per cent levels, from around 7 per cent currently, the treasurer added.
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Gambhir, however, does not expect the RBI to begin cutting interest rates this financial year, assuming an improvement in growth estimates, and as he sees headline inflation remaining above the central bank’s 4 per cent target.
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“We could see some possibility of cuts next year if the Federal Reserve cuts (interest rates) by September or December,” he added.
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Gambhir sees shorter-term bonds as more attractive as the yield curve is flat, with hardly any difference between the yield on the 1-year and longer-duration securities.
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“The rate hiking cycle is over, and the next step would be a cut, and with this kind of a flat yield curve, we should see some sort of steepening as markets start pricing in rate cuts.
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Therefore, the front-end of the yield curve, say, up to five years presents good value.”
First Published: Jul 15 2024 | 1:04 PM IST
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