Measures to strengthen fiscal conditions may reduce the yield on government bonds. Traders say that despite the increase in the market in FY 2025-26, the fiscal strengthening efforts can lead to the yield down on the government bonds. The government has targeted to limit the fiscal deficit to 4.4 per cent of GDP in FY 2025-26, which is less than 4.8 per cent for the current financial year.
The government has increased the target of gross borrowing from the market to Rs 14.82 lakh crore to bridge the fiscal deficit. This amount is slightly more than Rs 14.01 lakh crore in the current financial year. But this will not increase the yield on the bond. The net borrowing from the market will be Rs 11.54 lakh crore, which is slightly less than Rs 11.63 lakh crore in the current financial year.
Treasury chief in a private bank said, ‘The government has decided to increase the borrowing from the market a bit, but they have not compromised with fiscal fiscal. The bond market is expected to open down 2-3 base points on Monday. On Friday, a yield was recorded at 6.69 percent on the government bonds of 10 years. The eye of the bond market is now on the meeting of the Monetary Policy Committee of the Reserve Bank of India (RBI), the results of which will come on Friday.
A bond businessman said about this, ‘The budget has been largely in line with estimates. This can change the yield 2-3 basis points on the bond. The result of MPC meeting is going to be more impact. Traders say that policy rates can be reduced by 25 basis points and the interest rates can start at the lower level. According to bond traders, this will reduce the yield on government bonds to 6.60 percent. The last time policy rates were reduced in May 2020 during the Kovid epidemic.
Treasury head of another private bank said that in view of measures to increase cash, policy rates can be reduced by at least 25 basis points. He said that if the interest rates are reduced, the yield will also be reduced to 6.60 percent.
In the era of Kovid, the fiscal deficit of the Center in the year 2020-21 had reached a higher level of GDP but has been steadily decreasing since then.
Economist (India) Arudeep Nandi in Nomura said, ‘The government is also giving relief in income tax to taxpayers along with reducing fiscal deficit. Along with these measures, public investment level is being kept well. All this has been possible due to the huge dividends received from RBI and a strong increase in income tax collection. This budget has been broadly according to estimates.