Indian borrowers are expected to issue bonds this month as rates are seen rising after the federal budget on Feb. 26, but this week might be relatively slow as the market digests the central bank's policy review, bankers said.

"The consensus is that rates will definitely not go down but the budget will most probably push them up. So everyone is agreed that this month is the best to borrow, but (prospective) issuers have yet to work out requirements and feasibility," said a merchant banker.

At its third quarter monetary policy review on Friday, India's central bank lifted the cash reserve ratio (CRR) -- the amount of funds banks must hold at the central bank -- by a higher-than-expected 75 basis points and held key interest rates steady.

However, analysts said the bank had put the onus on the government to lower its deficit, and therefore the Reserve Bank of India (RBI) is unlikely to act before the government spells out its borrowing needs in the budget proposals.

The RBI is now expected to increase its benchmark interest rates by the end of April, a Reuters poll of 25 economists shows. It is scheduled to review monetary policy on April 20.

For stories and comments on last week's monetary policy.

The yield on the Reuters benchmark five-year corporate bond AAAIN5Y= was at 8.31 percent last Friday, slightly higher than 8.28 percent a week earlier.

The spread between the five-year corporate and government bonds narrowed to 90.18 basis points from 91.37 basis points a week earlier.

As India's corporate bond market is relatively illiquid, with average daily volumes of about 15-20 billion rupees versus 80-100 billion rupees in the government bond market, corporate debt derives its pricing from the yield on its federal counterparts.

Thus, bankers said the government's borrowing programme would be closely watched.

"Though the Feb. 5 auctions would be the last (federal) bond sales for this fiscal as per existing plans, postponement of the 3G auctions, farm subsidies and food price inflation pose a cause for concern," according to a Citigroup note.

A central bank deputy governor last week said net government borrowing in the fiscal year 2010/11 is likely to be similar to the current year's record 4.51 trillion rupees, and Kotak Mahindra Bank pegs this figure at 4.43 trillion rupees.

Kotak also said the announcement of the 2010/11 borrowing plan could push the yield on the benchmark 10-year government bond up to 8 percent by the end of March 2010.

The benchmark 10-year bond yield IN10YT=RR is currently trading at around 7.58 percent.