India RBI may increase debt sales to drain liquidity after first such auction in 9 years

Bond traders in India anticipate the Reserve Bank of India may step up its bond sales to drain surplus banking liquidity, according to Business Recorder. The central bank sold bonds worth 500 billion rupees ($5.21 billion) in an open market auction, its first time as a net seller since November 2017, and bidding was robust. The operation pulled cash worth nearly 0.2 per cent of all banking-system deposits out of the market.

Papers due between fiscal 2029 and 2032 were sold at yields slightly above market estimates. Further sales of 250 billion rupees apiece are scheduled within the next fortnight. A record liquidity surplus of 11.6 trillion rupees was reached on September 6, but it has since shrunk by roughly a third to about 7.4 trillion rupees. Tax outflows and heavy foreign exchange intervention by the RBI account for the drop.

Alok Sharma of ICBC expects one more open market sale or a cash reserve ratio increase before the October review. ICICI Securities Primary Dealership forecasts roughly 2 trillion rupees of bond-sale withdrawals as rate hikes begin in October. State Street's APAC economist Krishna Bhimavarapu says 1 trillion rupees will not be the final step, as several trillion more may need draining.