Govt loans could stoke rate hike | india | Hindustan Times
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Govt loans could stoke rate hike

india Updated: Mar 17, 2010 20:33 IST
HT Correspondents

Your interest rate concerns are facing another fear factor.

Talk of an interest rate hike in the backdrop of high inflation and rebounding economic growth are being compounded by a hefty government borrowing that could squeeze cash from the banking system and send interest rates north.

The government is expected to mop up Rs 14,000 crore a week in the first six months of 2010-11.

The Reserve Bank of India (RBI) will have to do a fine balancing act to keep the cost of borrowing for companies at reasonably low levels, make enough money available in the banking system to fund corporate expansion and also needs to take care of the government's needs to finance its deficit during 2010-11.

Finance ministry officials said that the borrowing calendar will be structured in a manner that half of its Rs 3.45 lakh crore net borrowing programme leaves enough room and liquidity for companies.
In 2009-10, as much as 65 per cent of 4.51 lakh crore government borrowings was done in the first half.

“While much of the rate hike cycle is already factored in, the rates may still go up when the borrowing happens,” said a leading fund analyst, who did not wish to be identified.
RBI and senior finance ministry officials are expected to meet next to finalise the borrowing calendar.

“About 70 per cent for the borrowing programme will be targeted in the first six months and given that backdrop there will be huge supply which would have to be absorbed,” said Nandkumar Surti, chief investment officer, JP Morgan AMC.

Government borrowings could also rise if revenue collections fall short.