Mumbai: Indian borrowers have increased rupee bond sales to a record this year and the top underwriter sees a half percentage point cut in interest rates sustaining the momentum.

Offerings have jumped 50 per cent from a year earlier to Rs2.1 trillion (Dh121.38 billion, $33 billion), the most in data compiled by Bloomberg going back to 2009. Rural Electrification Corp and National Bank for Agriculture & Rural Development plan to increase sales, after yields on AAA rated rupee notes due in five years fell to a two-year low of 8.34 per cent last month.

The financing boom is good news for Prime Minister Narendra Modi as he grapples with a sliding currency, falling stocks and rising oil prices. The Reserve Bank of India won more room to trim rates after data this week showed cooling inflation, according to Axis Bank Ltd. By contrast, rising US borrowing costs have made dollar fund-raising less appealing.

“Preference will be for local debt,” said Shashi Kant Rathi, Mumbai-based head for debt capital markets at Axis, the top rupee debt underwriter with a 17.4 per cent share. “Dollar rates are yet to price in uncertainties of the global oil, currency and interest-rate markets.”

Policymakers are seeking to sustain economic growth that the International Monetary Fund forecasts will surpass China this year at 7.5 per cent. Rathi predicts the RBI will trim the repurchase rate by an additional 50 basis points this year.

Economic signals

Consumer prices rose 4.87 per cent in April from a year earlier after a revised 5.25 per cent increase in March. Industrial production grew 2.1 per cent compared with an estimated 3 per cent rise. The rupee has tumbled 1.7 per cent this quarter, the most in Asia after the Thai baht, as the Sensex stock index dropped 2.4 per cent.

“The latest economic data probably give more scope to cut the benchmark rate,” Harsh Kumar Bhanwala, chairman at New Delhi-based National Bank for Agriculture, or Nabard, said in an interview May 12. The lender will increase local debt offerings by about 7 per cent this financial year, Bhanwala said.

Rural Electrification, which led issuance last year, is targeting slightly more rupee bond sales this financial year, according to Ajeet Agarwal, New Delhi-based finance director at the company. “Domestic bonds will be a major sourcing of funding for us this year.”

Dollar-denominated notes won’t help save costs as the Federal Reserve may raise the benchmark rate this year, according to David Rasquinha, Deputy Managing Director at Export-Import Bank of India.

Dollar uncertainty

“Dollar borrowing rates will rise because uncertainties surrounding the global markets haven’t been fully priced in,” Mumbai-based Rasquinha said. “Therefore we are allocating most of our incremental borrowings this year to the local market.”

Export-Import Bank will increase its borrowing this fiscal year to March 2016 to 320 billion rupees from 300 billion rupees in the previous year, Rasquinha said.

While a rebound in crude prices since March adds some pressure to consumer prices in a country that imports about 80 per cent of its oil, the bigger effect will be on US Treasury yields, according to according to Rural Electrification’s Agarwal.

“Oil’s rise hits dollar rates instantly and inflation in India only later on, so the advantage of borrowing overseas is slowly waning,” Agarwal said. “The dynamics are quite different in the local market and that is stoking optimism of lower borrowing costs.”