EconomyTop News

RBI Buys So Many U.S. Dollars That It Ends Up Supporting Debt Market

2 Mins read
imageForex14 hours ago (Jul 01, 2020 12:27AM ET)

(C) Reuters. RBI Buys So Many U.S. Dollars That It Ends Up Supporting Debt Market

(Bloomberg) — The Reserve Bank of India has accumulated so many dollars recently that it’s having a knock-on impact on the nation’s sovereign debt market.

The central bank mopped up $30 billion of dollars in the April-June period, the most in more than a decade, leading to a flood of rupees in the financial system. Data from the RBI suggest that local banks are recycling the liquidity into government bonds.

The impact from RBI’s foreign-exchange intervention explains why sovereign bonds have gained for a fifth month despite the deluge of issuances. That has also allowed the central bank to be circumspect about its own purchases to support the market, which traders have been demanding.

“The central bank’s FX policy is achieving multiple objectives of augmenting reserves, creating liquidity that’s helping demand for bonds, and at the same time curbing rupee volatility,” said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership. “The RBI may continue with its policy of injecting funds via FX interventions over open-market debt purchases for now.”

Lenders increased their holdings of sovereign debt by 13% to 41.5 trillion rupees ($550 billion) as of June 5, from the end of March, according to the latest RBI data. That comes as the banking system is awashed with surplus liquidity of 5.8 trillion rupees, data compiled by Bloomberg show.

To be sure, the RBI’s 115 basis points of rate cuts this year, and other measures to ease a coronavirus-induced credit crunch, have also contributed to the funds sitting in banks.

The RBI’s forex intervention “has kept the rupee and bonds stable, and at the same time helped clear the humongous supply of bonds,” said Saurabh Bhatia, head of fixed income at DSP Investment Managers Pvt. in Mumbai.

The yield on the 6.45% 2029 bonds, the most-traded benchmark debt, fell two basis points to 5.99% on Tuesday. It dropped 15 basis points in the second quarter even after the government ramped up its borrowings by 54% in May.

(C)2020 Bloomberg L.P.

RBI Buys So Many U.S. Dollars That It Ends Up Supporting Debt Market

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Related posts
Market OverviewTop News

Mass jailbreak in Afghanistan, at least 24 die in Islamic State attack

2 Mins read
World7 minutes ago (Aug 03, 2020 03:51AM ET) 2/2 (C) Reuters. Army vehicle patrols near the site of an attack on a…
StockTop News

Forex - Dollar Edges Higher, But More Weakness Likely

2 Mins read
Forex5 hours ago (Aug 03, 2020 03:06AM ET) (C) Reuters. By Peter Nurse — The dollar has posted small gains in…
Market OverviewTop News

Lebanese foreign minister Hitti says he will resign today: report

1 Mins read
World1 hour ago (Aug 03, 2020 02:55AM ET) 2/2 (C) Reuters. Lebanese Foreign Minister Nassif Hitti speaks during a joint news conference…
Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us and our affiliates. Remember that you can opt-out any time, we hate spam too!

Leave a Reply

Your email address will not be published. Required fields are marked *