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RBI Address Liquidity

ASIA RATES
  • INDIA: Yields lower in early trade, bonds benefiting from risk aversion evident in Asia-Pac markets. Risk off sentiment sparked outflows and pressured the rupee and stocks for a second day yesterday, INR declined with USD/INR hitting the highest since August 27. Bond were bid meanwhile, yields reversing some of the rise earlier this week, a yield premium over the US and general demand for safe havens spurring inflows. As a note markets are on alert for RBI tweaks to liquidity operations after a Deutsche Bank note said the RBI could introduce longer-tenor reverse repos in its October policy to soak up excess liquidity from the banking system. It was announced yesterday that the RBI will hold an INR 3.5tn 15-Day Reverse Repo Auction today to manage excess banking system liquidity. Further drains in liquidity via longer-tenor and larger size operations could set the stage for normalising policy through an increase in the reverse repo rate. Markets look ahead to a total INR 310bn auction today.
  • SOUTH KOREA: Futures higher, tracking a move in US tsys and given an extra boost by a sell off in domestic equity markets with the KOSPI down over 1%. After declining yesterday 10-Year futures gapped higher at the open, the contract last up 22 ticks at 127.23 while the 3-Year is up 1 tick at 110.27. There were 2,049 new coronavirus cases in the past 24 hours, above 2,000 for the second day. Health authorities warned again that new infections may further rise ahead of a major national holiday when millions travel. The 50-Year auction was smoothly taken down with cover rising from the previous sale thanks to a smaller sale size and yield premium.
  • CHINA: The PBOC matched injections with maturities, repo rates are lower and well within recent ranges. Futures have risen alongside regional peers and retraced most of the previous day's decline, boosted by declines in Chinese equity markets and worries over corporate bond contagion after reports that Evergrande plans to suspend interest payments on loans from two banks due Sept. 21. and asked a lender to wait for instructions about an extension plan, as a reminder Fitch cut Evergrande to CC from CCC+ yesterday.
  • INDONESIA: Yields higher, curve bear flattens. Indonesian Financial Services Authority yesterday lowered their 2021 loan growth forecast to +4.0%-4.5% Y/Y and said they would be more optimistic if the vaccination drive accelerates and there are no new coronavirus variants which could exacerbate the outbreak. As a reminder the official consumer confidence index published by Bank Indonesia tumbled to 77.3 in August, its lowest point in 16 years. The update came a day after the Danareksa Research Institute said that their gauge of consumer sentiment rose to 71.2 from 62.1.
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