While the central bank has cut rates four times this year, banks have been reluctant to fully pass on Asia’s most aggressive easing amid a surge in bad loans. The widening spread reflects worries about the government adding to its record borrowing after the major booster.
“A high term premia, together with wider credit spreads, would mean that interest rates for end-borrowers will remain high despite steep rate cuts of 110 basis points announced this year,” Neelkanth Mishra, India strategist at Credit Suisse Group AG, told BloombergQuint.
While Finance Minister Nirmala Sitharaman
said there were no plans to revise its borrowings of Rs 7.1 trillion for now, traders remain cautious. Standard Chartered Plc is forecasting the need for as much as Rs 800 billion ($11.3 billion) of new debt.
The tax cut, estimated to cost Rs 1.45 trillion in lost revenue, may push up the fiscal deficit to 3.9% of gross domestic product for the year to March, compared with a goal of 3.3%, according to a Bloomberg poll of economists.
Yields on 10-year bonds surged as much as 24 basis points on Friday, the most since February 2017, and a gauge of volatility for the notes rose to an eight-month high. They fell 4 basis points on Monday to 6.75%.