Indian bonds end flat as traders gauge RBI liquidity approach
India’s benchmark 6.94% 2036 bond yield ended at 6.9607%, versus 6.9625% at Friday’s close.
On Monday, the RBI withdrew 2.59 trillion rupees through its first ever 30-day variable rate reverse repo that includes flexibility for early redemption, against an option of 7 trillion rupees. The RBI quickly followed with an overnight VRRR, to absorb another 5 trillion rupees, attracting bids worth 3.53 trillion rupees.
RBL Bank’s board has given the green light to raise up to one billion US dollars from foreign investors via a Euro Medium Term Note Programme. The bank’s borrowing committee is entrusted with overseeing all vital steps required for this initiative. This decision comes on the heels of Emirates NBD Bank acquiring a controlling sixty percent stake in RBL Bank’s enhanced share capital.
The central bank has so far removed more than 8.5 trillion rupees through such auctions that will mature in the coming days. These auctions allow banks to park excess funds from large diaspora deposits collected over the last three months.
Still, some market participants are worried that the central bank may have to take tougher steps to drain ballooning banking-system liquidity surplus that hit a record 11.16 trillion rupees ($118.11 billion) on September 6.
Given the excess, the RBI could use a mix of market stabilisation bills and FX sell-buy swaps, said Gaura Sen Gupta, chief economist at IDFC First Bank.
“The maturity of both these instruments could be six months and then rolled over depending on prevailing liquiditysituation.”
Apart from reverse repos, Indian lenders had proposed the central bank could conduct foreign-exchange sell/buy swaps to drain excess rupee liquidity that has pushed overnight call rates below the floor of the monetary policy corridor for a third straight trading session.
Rising oil prices also put a lid on any rise in bond prices. Brent crude futures gained 1.17% to $97.41 in Asian trade as Iran said it will announce a new restricted zone in the Persian Gulf.
RATES
India’s overnight indexed swaps eased marginally after staying in a tight range for most part of the session.
The one-year rate fell 1.5 bps to 5.9750%, while the two-year rate closed 1.5 bps down at 6.17%. The five-year rate settled 0.5 bps lower at 6.4625%.
