Care Ratings in its latest report has said that notwithstanding the Rs 10,000-crore liquidity infusion through the G-Sap route by the RBI last week and fewer states tapping the bond markets, their cost of borrowing has been heading north, as the coupon hit the highest level since mid-March at 7 percent. At 7 percent, the weighted average yield of state debt has risen by a whopping 44 bps since the first auction of the fiscal on April 8.
According to the report, the borrowing cost across the states and maturities rose to the highest level since mid-March, reversing the decline seen at last week's auction at 7 percent in today's auctions of state government securities, which is a full 24 bps higher than last week. Ahead of the Rs 10,000-crore secondary market purchase of state debt on June 17 under the G-Sap (government securities acquisition programme), the average cost had fallen 20 bps to 6.75 per cent at the auction on June 15. This was the sharpest fall in months.
The report attribute the increase in yields to concerns over the inflation trajectory as crude is trading over a two-year high now. It also said firming inflation raises concerns over the RBI's ability to maintain the accommodative monetary policy stance.