RBI to make govt borrowing smooth: Gopinath

The Reserve Bank of India will ensure government borrowing in the current and next financial years will create as little disruption in bond markets as possible, deputy governor Shyamala Gopinath said today.

"From the market perspective, what is necessary is that we ensure a non-disruptive way of government borrowing. We will ensure that this year's government borrowing and the next year's borrowing is done smoothly," she told reporters in Mumbai.

The bond market has been racked by high volatility in recent days as the central bank struggled to find buyers for a late rush of government borrowing. Benchmark yields have shot up by more than 200 basis points since the start of 2009 even as the central bank has slashed rates by 150 basis points to stimulate growth.

Markets took her comments in their stride, with the 10-year benchmark bond yield unchanged at 6.66 per cent.

Since 10 February, the government has announced extra borrowing of Rs91,000 crore by the end of the fiscal year on 31 March. Out of this, the central bank has already sold Rs34,000 crore of debt and will auction another Rs12,000 crore this week.

It has agreed to hand over Rs45,000 rupees held against bonds to soak up funds released by earlier currency market moves to the government. To keep a lid on yields, it has also started buying back bonds via open market operations.

The central bank has bought back Rs36,600 of debt in five auctions since mid-February - more than government has sold - and will buy back up to Rs10,000 crore of bonds this week.

"We are doing open market operations and we will do it as and when necessary and how much necessary," Gopinath said.