The sources said the latest bond switch conducted by the government with the central bank at the end of January was not factored into budget estimates released on Tuesday.
The reduction could be announced before the end of March, the sources said requesting anonymity because of the sensitivity of the matter.
India’s 10-year bond yield continued to rise on Wednesday, hitting a two-and-half year high, largely in reaction to the latest borrowing plan, which was over 40% higher than the borrowing slated for this year.
Markets had been expecting borrowing of 12-13 trillion rupees for 2022/23.
India switched nearly 1.2 trillion rupees of government bonds on Jan. 28 with 636.5 billion rupees worth of debt maturing in the next fiscal year.
“The switch has not been factored. It would lower the borrowing for the current year,” one of the official said.
A second official said the switch could lower the 2022/23 borrowing by as much as 500-600 billion rupees.
The officials also said that they expect RBI to intervene in the market to help smoothen the borrowing for 2022/23.
India’s growth-focused budget for the upcoming fiscal year has fuelled worries among bond traders who fear the central bank may now be forced to act on the inflationary risks by raising interest rates, despite its dovish policy stance.
Traders will now look ahead at the upcoming monetary policy review to be held between Feb. 7-9 for further clues.
