*Forward Dollar Premium/Discount are midpoints of bid-offer spreads MUMBAI (Dow Jones)--Indian government bonds closed broadly lower Thursday as a sharp acceleration in weekly food inflation and the continuing cash crunch in the banking system damped appetite for debt. The most-traded 8.13% 2022 bond closed at INR100.83, a tad down from INR100.85 Wednesday. However, the thinly traded benchmark bond ended the session at INR99.15, up from the previous close of INR99.08. Driven by soaring vegetable prices, India's wholesale price index for food articles for the week ended Dec. 11 rose 2.3% from the previous week and 12.13% from a year earlier, government data showed Thursday. It was the third consecutive week food prices have risen. The sharp gain highlighted persistent price pressures in the economy that could prompt the central bank to tighten rates in its January policy review. Sentiment was further marred by the cash crunch in the banking system. Banks borrowed INR1.56 trillion from the central bank's two liquidity auctions Thursday, a day after borrowing a record INR1.7 trillion, to meet rising demand for loans as deposit growth remained sluggish. Also, companies had withdrawn about INR500 billion for advance quarterly tax payments over the middle of December, widening the cash deficit. The situation is however likely to stabilize in January when government spending starts gathering steam and also with redemption of government securities, Joydeep Sen, senior vice president of the fixed income advisory desk at BNP Paribas Wealth Management, said in a report. Bonds worth INR88.46 billion mature on Jan. 29 and another INR170.83 billion on Feb. 24. This will help ease the supply situation and cap yields, he said. In the currency market, the Indian rupee fell against the dollar as local stocks traded lower and due to demand for the greenback from a large company. Gains were however capped as exporters continued to sell the dollar ahead of the holiday week. The dollar on late Thursday was at INR45.17, up from INR45.09 late Wednesday and after falling to a low of INR44.97 in early trade. "Markets will remain choppy and may take some cues from the U.S. jobless claims, durable goods and personal income data for its next session," a dealer at a foreign bank said. He expects the dollar in a INR44.95-INR45.35 range next session. -By Nupur Acharya; Dow Jones Newswires; +91-22-61456117; nupur.acharya@dowjones.com

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