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RBI Addresses Liquidity

INDIA

Another day of 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 yields declined meanwhile, reversing some of the rise earlier this week, benefitting from a yield premium over the US and general demand for safe havens. 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. The RBI will sell:

  • INR 100bn 5.63% 2026 bonds
  • INR 100bn 2035 bonds
  • INR 70bn 6.67% 2050 bonds
  • INR 30bn FRB 2034 bonds

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