Indian bond traders who were anticipating the central bank to retain the cash faucet open may have to revise their calculations.
The Reserve Bank of India will operate a counter repo auction of 250 billion rupees of a 63-day session on Wednesday, the first such transition to use the means for a longer term to consume cash, the central bank said late Tuesday evening.
Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership, said “The market will read it as no open-market operations by the RBI for now.”
While the cash discharge isn’t expected to instantly make a dip, thanks to the easy liquidity provisions, investors are concerned that the decline in debt investments by the central bank would remove key support at a time when the government plans to borrow a record 7.1 trillion rupees this financial year, Singh said.
By the end of March during the year, RBI bought a record of 3 trillion rupees of debt, serving excellent bond yields, and has since spent a further 500 billion rupees on such investments.
It also added a forex swap tool to inject rupee liquidity as an alternative to debt buys.
Decelerating economic expansion and a widening shadow banking crisis have led to calls for more liquidity, heading to some merchants considering that the RBI will move to a reverse repo mode, pulling inter-bank rates lower.
“This seems to be a way to exert greater control in rates out to the three-month tenor,” said Eugene Leow. “It is probably needed in order to handle the liquidity surplus that has been built up over the past few weeks.”Share this to your,