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INDIA: RBI Announces Increased Liquidity Injection. 

INDIA
IndiaEM BulletBulletAPACEmerging Market News

 

  • The RBI has announced that the planned purchases of bonds for February 20 to rise to INR400bn.
  • This represents a doubling of the amount from the prior auction and is as result of a review of “current and evolving liquidity conditions” as per the RBI.
  • The RBI will also hold a INR750bn 4-day repo auction on 17 February and a variable rate auction of up INR1tn on Monday.
  • The increase in liquidity comes at a time when measures to defend the currency has resulted in a liquidity squeeze in the interbank market.
  • The RBI has been defending the Rupee aggressively since Q3 last year, resulting in a material decline in FX reserves. 
image
  • This has also created challenges for liquidity in the interbank market.
  • More recently the  RBI has turned to derivatives as a measure to intervene via the use of dollar forwards.
  • According to reports, the net dollar short forward position has hit an all time high from the RBI.
  • The use of forwards negates the use of FX Reserves but for some is delaying the inevitable.
  • The RBI recently cut rates for the first time in since early 2023 to support the flagging growth in India.
  • The provision of liquidity into the interbank market has been increasing and is likely in the near term to be a mainstay of policy.
  • Since a peak in early January of 6.85%, India’s 10YR has declined to 6.70% as of Friday.
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  • The RBI has announced that the planned purchases of bonds for February 20 to rise to INR400bn.
  • This represents a doubling of the amount from the prior auction and is as result of a review of “current and evolving liquidity conditions” as per the RBI.
  • The RBI will also hold a INR750bn 4-day repo auction on 17 February and a variable rate auction of up INR1tn on Monday.
  • The increase in liquidity comes at a time when measures to defend the currency has resulted in a liquidity squeeze in the interbank market.
  • The RBI has been defending the Rupee aggressively since Q3 last year, resulting in a material decline in FX reserves. 
image
  • This has also created challenges for liquidity in the interbank market.
  • More recently the  RBI has turned to derivatives as a measure to intervene via the use of dollar forwards.
  • According to reports, the net dollar short forward position has hit an all time high from the RBI.
  • The use of forwards negates the use of FX Reserves but for some is delaying the inevitable.
  • The RBI recently cut rates for the first time in since early 2023 to support the flagging growth in India.
  • The provision of liquidity into the interbank market has been increasing and is likely in the near term to be a mainstay of policy.
  • Since a peak in early January of 6.85%, India’s 10YR has declined to 6.70% as of Friday.