Raghuram Rajan seen boosting bond intervention to draw cash

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Mumbai: A slide in Indian money-market rates to a 15-month low is prompting the central bank to sell bonds and siphon off excess cash that may stoke inflation. One-month interbank borrowing costs in Mumbai fell 29 basis points this quarter to 8.48% on 7 November, the least since July 2013, the National Stock Exchange of India Ltd (NSE) data show. The Reserve Bank of India (RBI), which resumed open-market debt sales in October after 15 months, has since drained Rs.16,930 crore from the financial system using such auctions. The drop in the cost of money is at odds with RBI governor Raghuram Rajan’s policy of maintaining the region’s highest benchmark rates to curb price pressures. SBI Funds Management Pvt. Ltd and DCB Bank Ltd say the monetary authority may conduct more open-market securities sales to keep cash in check. “RBI doesn’t want the overnight rates, the short-end of the curve, to fall too much,” Dhawal Dalal, Mumbai-based head of fixed income at DSP BlackRock Investment Managers Pvt. Ltd, the Indian venture of the world’s largest money manager, said in a 10 November phone interview. “By doing so, perhaps, it wants to communicate that they aren’t in a hurry to cut rates and want to preserve their anti-inflation stance.” Governor Rajan has held the benchmark repurchase rate at 8% after increasing it three times from September 2013 through January to rein in living costs in Asia’s third-largest economy. Central bank rates are at 3% in China and 2% in South Korea. RBI’s policy helped lower India’s consumer-price inflation to 6.46% in September from as much as 11.2% in November 2013

Mumbai: A slide in Indian money-market rates to a 15-month low is prompting the central bank to sell bonds and siphon off excess cash that may stoke inflation. One-month interbank borrowing costs in Mumbai fell 29 basis points this quarter to 8.48% on 7 November, the least since July 2013, the National Stock Exchange of India Ltd (NSE) data show. The Reserve Bank of India (RBI), which resumed open-market debt sales in October after 15 months, has since drained Rs.16,930 crore from the financial system using such auctions. The drop in the cost of money is at odds with RBI governor Raghuram Rajan’s policy of maintaining the region’s highest benchmark rates to curb price pressures. SBI Funds Management Pvt. Ltd and DCB Bank Ltd say the monetary authority may conduct more open-market securities sales to keep cash in check. “RBI doesn’t want the overnight rates, the short-end of the curve, to fall too much,” Dhawal Dalal, Mumbai-based head of fixed income at DSP BlackRock Investment Managers Pvt. Ltd, the Indian venture of the world’s largest money manager, said in a 10 November phone interview. “By doing so, perhaps, it wants to communicate that they aren’t in a hurry to cut rates and want to preserve their anti-inflation stance.” Governor Rajan has held the benchmark repurchase rate at 8% after increasing it three times from September 2013 through January to rein in living costs in Asia’s third-largest economy. Central bank rates are at 3% in China and 2% in South Korea. RBI’s policy helped lower India’s consumer-price inflation to 6.46% in September from as much as 11.2% in November 2013

Lending slowdown Spare cash at banks is increasing as lending grows at near the slowest pace since 2009 and as RBI’s dollar buying to build reserves releases funds, according to DCB Bank. Credit expansion cooled to 11% in October, from an average 22.3% in the decade through 2013. India’s foreign reserves rose more than $20 billion this year to $316 billion. “The system is flush with funds due to the slow credit growth and the central bank’s foreign-exchange interventions meant to keep the rupee stable,” Debendra Kumar Dash, a fixed- income trader at DCB Bank in Mumbai, said in a 11 November phone interview. “RBI wants to make sure that money-market rates remain around its benchmark 8% repo rate.” RBI’s daily money-market operations drained an average Rs.4,500 crore this month, compared with additions of Rs.1,700 crore in October, signaling increased funds. RBI ‘toolkit’ The central bank may prefer using open-market bond sales to counter a long-term increase in interbank cash supply, according to Barclays Plc. “RBI has a few instruments in its toolkit to manage liquidity,” Rohit Arora, an interest-rate strategist at Barclays in Singapore, said in an e-mail interview on Tuesday. “And, if the liquidity easing is sustainable for a longer period, RBI has stated their preference to use OMO sales.” The overnight money-market rate, or the Mumbai interbank offer rate, has slumped 51 basis points, or 0.51 percentage point, this year to 8.51%, according to data from NSE. The three-month Mibor has dropped 33 basis points to 8.73%. “If overnight rates have drifted lower due to excess cash, the central bank is trying to balance them as it’s concerned it might impact its inflation fight,” Rajeev Radhakrishnan, head of fixed income in Mumbai at SBI Funds Management, said in a 10 November phone interview. “Depending on liquidity conditions, RBI might do more open-market sales.” Bond rally Increased funding availability, combined with slower inflation, has fueled a rally in government bonds. The yield on the benchmark 10-year debt fell 64 basis points this year to 8.19% on Tuesday, while the rupee fell 0.1% to 61.56 per dollar, according to data compiled by Bloomberg. “The central bank wants to slow down the recent price appreciation in bonds,” DSP Blackrock’s Dalal said. Not everyone expects RBI to increase open-market debt sales. FirstRand Ltd expects the surplus money at banks to be drained by quarterly corporate tax payments due next month and as the government slows spending to meet a goal to narrow the budget deficit. India plans to reduce the shortfall in public finances to a seven-year low of 4.1% of gross domestic product (GDP) in the 12 months through March 2015. “As much as RBI is concerned with the impact of the drop in money-market rates, I don’t think they will be doing too many OMO sales,” Harish Agarwal, a fixed-income trader at FirstRand Ltd said in a 11 November phone interview. Bond risk in India declined this year. Credit-default swaps insuring the notes of State Bank of India (SBI), a proxy for the sovereign, against non-payment for five years dropped 121 basis points to 159, according to data provider CMA. “The central bank will be concerned about diluting its tight policy stance if the money-market rates stay low for too long,” DCB Bank’s Dash said. “It will be actively managing the liquidity and may consider doing more open-market sales....BLOOMBERG.

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Mumbai: A slide in Indian money-market rates to a 15-month low is prompting the central bank to sell bonds and siphon off excess cash that may stoke inflation. One-month interbank borrowing costs in Mumbai fell 29 basis points this quarter to 8.48% on 7 November, the least since July 2013, the National Stock Exchange of India Ltd (NSE) data show. The Reserve Bank of India (RBI), which resumed open-market debt sales in October after 15 months, has since drained Rs.16,930 crore from the financial system using such auctions. The drop in the cost of money is at odds with RBI governor Raghuram Rajan’s policy of maintaining the region’s highest benchmark rates to curb price pressures. SBI Funds Management Pvt. Ltd and DCB Bank Ltd say the monetary authority may conduct more open-market securities sales to keep cash in check. “RBI doesn’t want the overnight rates, the short-end of the curve, to fall too much,” Dhawal Dalal, Mumbai-based head of fixed income at DSP BlackRock Investment Managers Pvt. Ltd, the Indian venture of the world’s largest money manager, said in a 10 November phone interview. “By doing so, perhaps, it wants to communicate that they aren’t in a hurry to cut rates and want to preserve their anti-inflation stance.” Governor Rajan has held the benchmark repurchase rate at 8% after increasing it three times from September 2013 through January to rein in living costs in Asia’s third-largest economy. Central bank rates are at 3% in China and 2% in South Korea. RBI’s policy helped lower India’s consumer-price inflation to 6.46% in September from as much as 11.2% in November 2013

Read more at: http://www.livemint.com/Money/HeoZzGeOZKHzgkjPeQZ0DI/Raghuram-Rajan-seen-boosting-bond-intervention-to-draw-cash.html?utm_source=copy

Mumbai: A slide in Indian money-market rates to a 15-month low is prompting the central bank to sell bonds and siphon off excess cash that may stoke inflation. One-month interbank borrowing costs in Mumbai fell 29 basis points this quarter to 8.48% on 7 November, the least since July 2013, the National Stock Exchange of India Ltd (NSE) data show. The Reserve Bank of India (RBI), which resumed open-market debt sales in October after 15 months, has since drained Rs.16,930 crore from the financial system using such auctions. The drop in the cost of money is at odds with RBI governor Raghuram Rajan’s policy of maintaining the region’s highest benchmark rates to curb price pressures. SBI Funds Management Pvt. Ltd and DCB Bank Ltd say the monetary authority may conduct more open-market securities sales to keep cash in check. “RBI doesn’t want the overnight rates, the short-end of the curve, to fall too much,” Dhawal Dalal, Mumbai-based head of fixed income at DSP BlackRock Investment Managers Pvt. Ltd, the Indian venture of the world’s largest money manager, said in a 10 November phone interview. “By doing so, perhaps, it wants to communicate that they aren’t in a hurry to cut rates and want to preserve their anti-inflation stance.” Governor Rajan has held the benchmark repurchase rate at 8% after increasing it three times from September 2013 through January to rein in living costs in Asia’s third-largest economy. Central bank rates are at 3% in China and 2% in South Korea. RBI’s policy helped lower India’s consumer-price inflation to 6.46% in September from as much as 11.2% in November 2013

Read more at: http://www.livemint.com/Money/HeoZzGeOZKHzgkjPeQZ0DI/Raghuram-Rajan-seen-boosting-bond-intervention-to-draw-cash.html?utm_source=copy

Mumbai: A slide in Indian money-market rates to a 15-month low is prompting the central bank to sell bonds and siphon off excess cash that may stoke inflation. One-month interbank borrowing costs in Mumbai fell 29 basis points this quarter to 8.48% on 7 November, the least since July 2013, the National Stock Exchange of India Ltd (NSE) data show. The Reserve Bank of India (RBI), which resumed open-market debt sales in October after 15 months, has since drained Rs.16,930 crore from the financial system using such auctions. The drop in the cost of money is at odds with RBI governor Raghuram Rajan’s policy of maintaining the region’s highest benchmark rates to curb price pressures. SBI Funds Management Pvt. Ltd and DCB Bank Ltd say the monetary authority may conduct more open-market securities sales to keep cash in check. “RBI doesn’t want the overnight rates, the short-end of the curve, to fall too much,” Dhawal Dalal, Mumbai-based head of fixed income at DSP BlackRock Investment Managers Pvt. Ltd, the Indian venture of the world’s largest money manager, said in a 10 November phone interview. “By doing so, perhaps, it wants to communicate that they aren’t in a hurry to cut rates and want to preserve their anti-inflation stance.” Governor Rajan has held the benchmark repurchase rate at 8% after increasing it three times from September 2013 through January to rein in living costs in Asia’s third-largest economy. Central bank rates are at 3% in China and 2% in South Korea. RBI’s policy helped lower India’s consumer-price inflation to 6.46% in September from as much as 11.2% in November 2013

Read more at: http://www.livemint.com/Money/HeoZzGeOZKHzgkjPeQZ0DI/Raghuram-Rajan-seen-boosting-bond-intervention-to-draw-cash.html?utm_source=copy

Mumbai: A slide in Indian money-market rates to a 15-month low is prompting the central bank to sell bonds and siphon off excess cash that may stoke inflation. One-month interbank borrowing costs in Mumbai fell 29 basis points this quarter to 8.48% on 7 November, the least since July 2013, the National Stock Exchange of India Ltd (NSE) data show. The Reserve Bank of India (RBI), which resumed open-market debt sales in October after 15 months, has since drained Rs.16,930 crore from the financial system using such auctions. The drop in the cost of money is at odds with RBI governor Raghuram Rajan’s policy of maintaining the region’s highest benchmark rates to curb price pressures. SBI Funds Management Pvt. Ltd and DCB Bank Ltd say the monetary authority may conduct more open-market securities sales to keep cash in check. “RBI doesn’t want the overnight rates, the short-end of the curve, to fall too much,” Dhawal Dalal, Mumbai-based head of fixed income at DSP BlackRock Investment Managers Pvt. Ltd, the Indian venture of the world’s largest money manager, said in a 10 November phone interview. “By doing so, perhaps, it wants to communicate that they aren’t in a hurry to cut rates and want to preserve their anti-inflation stance.” Governor Rajan has held the benchmark repurchase rate at 8% after increasing it three times from September 2013 through January to rein in living costs in Asia’s third-largest economy. Central bank rates are at 3% in China and 2% in South Korea. RBI’s policy helped lower India’s consumer-price inflation to 6.46% in September from as much as 11.2% in November 2013. Lending slowdown Spare cash at banks is increasing as lending grows at near the slowest pace since 2009 and as RBI’s dollar buying to build reserves releases funds, according to DCB Bank. Credit expansion cooled to 11% in October, from an average 22.3% in the decade through 2013. India’s foreign reserves rose more than $20 billion this year to $316 billion. “The system is flush with funds due to the slow credit growth and the central bank’s foreign-exchange interventions meant to keep the rupee stable,” Debendra Kumar Dash, a fixed- income trader at DCB Bank in Mumbai, said in a 11 November phone interview. “RBI wants to make sure that money-market rates remain around its benchmark 8% repo rate.” RBI’s daily money-market operations drained an average Rs.4,500 crore this month, compared with additions of Rs.1,700 crore in October, signaling increased funds. RBI ‘toolkit’ The central bank may prefer using open-market bond sales to counter a long-term increase in interbank cash supply, according to Barclays Plc. “RBI has a few instruments in its toolkit to manage liquidity,” Rohit Arora, an interest-rate strategist at Barclays in Singapore, said in an e-mail interview on Tuesday. “And, if the liquidity easing is sustainable for a longer period, RBI has stated their preference to use OMO sales.” The overnight money-market rate, or the Mumbai interbank offer rate, has slumped 51 basis points, or 0.51 percentage point, this year to 8.51%, according to data from NSE. The three-month Mibor has dropped 33 basis points to 8.73%. “If overnight rates have drifted lower due to excess cash, the central bank is trying to balance them as it’s concerned it might impact its inflation fight,” Rajeev Radhakrishnan, head of fixed income in Mumbai at SBI Funds Management, said in a 10 November phone interview. “Depending on liquidity conditions, RBI might do more open-market sales.” Bond rally Increased funding availability, combined with slower inflation, has fueled a rally in government bonds. The yield on the benchmark 10-year debt fell 64 basis points this year to 8.19% on Tuesday, while the rupee fell 0.1% to 61.56 per dollar, according to data compiled by Bloomberg. “The central bank wants to slow down the recent price appreciation in bonds,” DSP Blackrock’s Dalal said. Not everyone expects RBI to increase open-market debt sales. FirstRand Ltd expects the surplus money at banks to be drained by quarterly corporate tax payments due next month and as the government slows spending to meet a goal to narrow the budget deficit. India plans to reduce the shortfall in public finances to a seven-year low of 4.1% of gross domestic product (GDP) in the 12 months through March 2015. “As much as RBI is concerned with the impact of the drop in money-market rates, I don’t think they will be doing too many OMO sales,” Harish Agarwal, a fixed-income trader at FirstRand Ltd said in a 11 November phone interview. Bond risk in India declined this year. Credit-default swaps insuring the notes of State Bank of India (SBI), a proxy for the sovereign, against non-payment for five years dropped 121 basis points to 159, according to data provider CMA. “The central bank will be concerned about diluting its tight policy stance if the money-market rates stay low for too long,” DCB Bank’s Dash said. “It will be actively managing the liquidity and may consider doing more open-market sales.” Bloomberg

Read more at: http://www.livemint.com/Money/HeoZzGeOZKHzgkjPeQZ0DI/Raghuram-Rajan-seen-boosting-bond-intervention-to-draw-cash.html?utm_source=copy