The Reserve Bank of India will operate a counter repo auction of 250 billion rupees

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.”

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