Bond dealers see govt stepping up borrowings

MUMBAI: A section of the bond market is speculating that RBI may go for increased government borrowings in the coming weeks to compensate for its recent intervention in the forex market. The central bank has been buying dollars to stem the rise in the rupee, effectively pumping in as much rupees into the system. The rupee rose 4.9% last week to brush past 47 mark on Friday.

The government also owes RBI Rs 27,000 crore as part of a short-term borrowing window for meeting its liquidity needs, called ways and means advances (WMA). This too has got bond dealers on the edge.

���There is a feeling in the market that the central bank will have to do something about the liquidity it is pumping into the currency market,��� says Yes Bank debt capital markets country head Nirav Dalal. He says RBI could have pumped in around $5 billion worth of rupee liquidity into the system, when it acted to prevent the rupee from rising last week. About a fifth of this could be in the spot market, he suggested.

Yields have been under pressure ever since RBI increased the weekly bond auction amount from Rs 12,000 crore to Rs 15,000 crore for the past two weeks.