India Central Bank Buys Bonds in Secondary Market to Cool Yields
(Bloomberg) -- India’s central bank has been buying debt in the secondary market in a bid to cool yields as Prime Minister Narendra Modi’s government embarked on a record-borrowing spree.
The Reserve Bank of India bought 146.6 billion rupees ($1.9 billion) of bonds in the market over three days last week, data released Friday by the monetary authority showed. These purchases were done anonymously over the electronic trading platform and are distinct from announced auctions via open market operations.
India’s central bank, which cut its benchmark rate by 75 basis point last month, is keen to lower yields to help reduce borrowing costs in Asia’s third-largest economy. The RBI on Friday cut the reverse repurchase rate to free up more cash for lending, fueling a rally in short-end bonds.
The administration is seeking to sell 4.88 trillion rupees of bonds in the six months to September. Meanwhile, earlier this week, in a rare development, the entire 91-day and 364-day treasury bill sales were soaked up by two bids each, while the 182-day sale was taken by a single bidder.
Authorities on Friday sold 200 billion rupees of debt as planned. The RBI indirectly bought bonds at the auction via primary dealers, Cogencis news service reported, citing a government official it didn’t identify. This was an indirect purchase and not akin to direct monetization of the deficit, the official was quoted as saying.
Under a law which came into effect in 2006, the central bank is barred from buying government debt in primary auctions. An escape clause in the law allows them to do so under exceptional circumstances.
The central bank on Friday refrained from announcing large scale open market bond purchases or buying sovereign debt directly, a call that has been getting louder.
Shorter bonds rallied on Friday after the reverse repo cut, but long-end yields fell less on concern over the government’s fiscal deficit amid potential higher spending to support growth.
©2020 Bloomberg L.P.