The additional borrowing of Rs 50,000 crore by the Centre is a "negative surprise" that will sustain higher yields and delay lending rate cuts, key for economic growth recovery, says a report.

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"We thought that the government's decision to borrow another Rs 500 billion/0.3 per cent of GDP was an avoidable negative surprise in an already nervous G-sec market," Bank of America Merrill Lynch said in a research note.

It further said notwithstanding bank recapitalisation, the sell off in G-secs is delaying lending rate cuts and pushing back recovery.

The government on December 27 said it has decided to make additional borrowing of Rs 50,000 crore this fiscal through dated securities. Dated securities have maturity of over five years.

The global brokerage expects Finance Minister Arun Jaitley to hold to the fiscal deficit target of 3.2 per cent of GDP, same as 2017-18, with net borrowing of Rs 4,92,000 crore.

"While we did not expect any breach in the FY2017-18 fiscal deficit target, we will wait for clarity about whether this additional borrowing will make up for revenue shortfalls or fund relaxation of the 3.2 per cent of GDP FY18 fiscal deficit target," the report noted.

The government had pegged the fiscal deficit at 3.2 per cent of the GDP for the current fiscal. Additional borrowing by the government may have impact on the fiscal math.

Since revenue collections from the Goods and Services Tax (GST) are slightly lower than the expected in the last two months, the additional borrowing would help bridge the shortfall.

BofAML expects Budget 2018 should see hikes in rural public spend; incentives for housing; and the IT exemption limit in the run up to the summer 2019 polls as well as 1 per cent cut in the corporate tax rate.