India’s Central Banker Makes Unusual Request to Financial Markets

(Bloomberg) -- India’s central bank chief has a message for bond traders -- behave and help control the yield curve.

In a five-minute discourse during a 30-minute policy address, Governor Shaktikanta Das urged traders to be patient, heed price signals given by the Reserve Bank of India, and do their part in maintaining market stability.

The comments, arguably Das’s most direct to market participants, underscore the frustrations the central bank has had in managing the nation’s record debt sales, with investors often refusing to pay the prices expected. It also turned Friday’s policy address, where expectations were low for any action, into a major talking point among Mumbai-based traders.

“Das is trying moral suasion and is telling the markets I am ready to support you,” said Arvind Chari, head of fixed income and alternatives at Quantum Advisors Pvt Ltd. in Mumbai. “The excessive focus of RBI is on ensuring the 10-year yield is ‘optically’ lowered.”

The RBI has been fighting a running battle with traders the past two months as it tries to hold down benchmark bond yields, while stubbornly high inflation prevents the central bank from cutting rates. Underwriters had to rescue four of the previous seven debt auctions.

Big Picture

Traders are missing the big picture, according to the mild-mannered Das, who is prone to sprinkling his policy address with inspirational quotes from former political leaders.

“Financial market stability and orderly evolution of the yield curve are public goods and both market participants and RBI have a shared responsibility in this regard,” the former economic affairs secretary said. Traders should “take a broader time perspective and display bidding behaviour that reflects a sensitivity to the signals from the RBI,” he added.

But while Das admonished traders, he also had something to offer. He announced liquidity steps including raising the size of open-market purchases to 200 billion rupees ($2.7 billion), stepping in to buy state debt, and supporting corporate bonds by announcing one trillion rupees of long-term repo operations. Yield on the benchmark 10-year debt fell nine basis points to 5.93%.

“The Governor addressing the market’s interpretation or sentiment, whatever you name it, that’s a very big thing,” said Jayesh Mehta, country treasurer at Bank of America. “Now, it’s very clear, there is no reason for the market to think differently from the RBI.”

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