(Bloomberg) -- Sovereign bonds in India rallied for a second day after the central bank decided a record 1.76 trillion rupees ($24.4 billion) payout to government coffers, easing traders’ worries over the administration meeting its fiscal-deficit target. The rupee rose.
The Reserve Bank of India’s board approved the transfer, which includes 1.23 trillion rupees as dividend and 526.4 billion rupees from its surplus capital, according to a statement late Monday. The dividend payment includes 280 billion rupees already transferred to the government in February.
The unprecedented payout is expected to help the government step up spending to shore up sagging economic growth. Bonds are seen benefiting as the infusion allays fears the administration will have to borrow more from the market to fund its fiscal support package. The stimulus is equivalent to about 1% of the nation’s $2.6 trillion economy, which makes the proportion almost as large as the Group of 20 nations’ stimulus amid the global financial crisis.
The government is said to mull cut in borrowings and meeting its fiscal deficit aim with the central bank transfer, people with knowledge of the matter said.
“The enhanced transfer gives the government greater flexibility in its fiscal math -– in the context of meeting the on-budget target of fiscal deficit at 3.3% of GDP, which is challenging against a weak start to tax revenue growth,” Morgan Stanley (NYSE:MS) analysts including Upasana Chachra wrote in a note.
The yield on the benchmark 10-year debt fell six basis points to 6.42%. It fell 9 basis points on Monday, largely because Finance Minister Nirmala Sitharaman resisted the pressure to deliver a big fiscal stimulus that businesses had been calling for. Yields rose 22 basis points in the last three weeks on concerns the government may borrow more to pump-prime a slowing economy. The rupee gained 0.3% to 71.78 to a dollar.
