Bloomberg News

India’s Bonds Gain as RBI Bond Purchases Help Ease Cash Squeeze

March 05, 2012

Indian bonds gained after the central bank said it will extend debt purchases to ease a cash squeeze in the banking system

Yields fell after Reserve Bank of India Deputy Governor Subir Gokarn said in an interview with CNBC TV-18 yesterday that reducing the cash-reserve ratio for banks was an option. The monetary authority will buy as much as 150 billion rupees ($3 billion) of notes on March 9, according to an RBI statement. The central bank has bought 1.1 trillion rupees of fixed-income securities since November.

“The open-market auction announcement to buy bonds has enthused the market,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank in Mumbai. “This will help reduce liquidity pressure to some extent.”

The yield on the 8.79 percent notes due in November 2021 fell one basis point, or 0.01 percentage point, to 8.22 percent as of 9:55 a.m. in Mumbai, according to the central bank’s trading system. The rate is the lowest since Feb. 29.

Lenders borrowed an average 1.5 trillion rupees a day from the Reserve Bank in March, according to central bank data, more than double the maximum of 600 billion rupees favored by the monetary authority.

Policy makers cut the amount of deposits lenders must set aside as reserves to 5.5 percent from 6 percent on Jan. 24, the first time since 2009. The next policy review is due on March 15.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell three basis points to 8.14 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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