India central bank opts for bond purchases in week to Jan 17

MUMBAI, Jan 24 (Reuters) – The Reserve Bank of India (RBI) made net purchases of government bonds in the secondary market last week, marking the first such operation in over three years, data released on Friday showed.

The RBI net bought bonds worth 101.75 billion rupees ($1.18 billion) in the week ending Jan. 17. These purchases were spread across just three sessions: 25.70 billion rupees on Jan. 15, 44.80 billion rupees on Jan. 16, and 31.25 billion rupees on Jan. 17.

The settlement of such screen-based purchases occurs a day after the trade.

“This is definitely a big positive, and the quantum of purchases clearly indicates the intent and could be a signal for the market that the RBI is looking to proactively manage banking system liquidity,” a senior treasury official said.

The central bank typically sells or buys bonds to adjust banking system liquidity and rates to align them with its monetary policy. However, these operations also impact yields.

The purchases incidentally were started close to the heels of the announcement of daily overnight variable rate repo auctions that the central bank has been conducting since last week.

India’s banking system liquidity has stayed in deficit since the middle of December, and the shortfall was largely above 2 trillion rupees per day for the week to Jan. 17.

The so-called others category of investors, which includes the RBI, along with insurers and pension funds, net bought bonds worth around 200 billion rupees in the week ended Jan. 17, data from the clearing house showed.

In the July-September quarter, the central bank had net sold bonds worth over 240 billion rupees through screen-based operations when the policy stance was tightening.

Market participants anticipate the central bank’s hand in the bond market for the current week as well, which will be clarified once the data comes out on Jan. 31.

($1 = 86.2150 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Tasim Zahid)