Piyush Wadhwa, senior vice-president at ICICI Securities Primary Dealership, said with cash conditions ample, loan growth muted and bank deposits rising, policymakers would be eager to complete the bulk of the borrowing in the next few months.

A jump in the 10-year bond yield to 7.50 per cent due to the surge of debt would erase the effect of the central bank's easing, said Rajeev Malik, an economist at Macquarie Securities.

Bond traders said the flood of new supply will likely push 10 years above that 7.50 per cent level in the next two to three weeks, and expect the central bank to try to stave off any further sharp spikes from those levels.

"It would mean borrowing costs remain high as a result of which the central bank would have to step in to ensure the nascent investment recovery doesn't get choked off," Malik said.

The flow of credit needed to lubricate India's economy is already slowing. Loan growth fell to around 16 per cent in late June from 27 per cent in November.

In a bid to control yields, the central bank has been buying government bonds since February.

Finance Secretary Ashok Chawla said on Monday the central bank would absorb about half the government's borrowing needs.

Central banks around the world from the US Federal Reserve to the Bank of Korea have been pouring cash into their banking systems, potentially stoking inflation down the road, and will have to extricate themselves from bond markets, hoping to make only minimal disruptions.

... contd.