India’s RBI Buys 100 Billion Rupees of Bonds in Operation Twist

(Bloomberg) -- India’s central bank bought 100 billion rupees ($1.4 billion) of the benchmark 10-year debt while selling 68.25 billion rupees of 2020 bonds as it sought to cheapen longer-term borrowing.

The Reserve Bank of India set a cutoff of 6.5462% for the 6.45% 2029 bonds, according to a statement. Yields slid after the auction results were announced, extending last week’s declines.

The switch move had been suggested by some traders and strategists as a way to pass on more of the central bank’s five rate reductions this year to businesses and individual borrowers. With investment and consumption both weak in India, policy makers are trying to spur credit and lift growth from a six-year low.

The concept is similar to Operation Twist used by the Fed in 2011-2012 in an effort to cheapen long-term borrowing and spur bank lending. The Fed then swapped short-term Treasury securities for longer-term government debt, which reduced the gap between two- and 10-year yields.

“The impact on bond market would depend on the strength of RBI’s follow up after the initial auction, and any implied signal about where RBI wants markets to settle,” ICICI Securities Primary Dealership Ltd. said in a note before the auction results.

To contact the reporter on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Ravil Shirodkar

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