Informist, Friday, Nov 3, 2023
--Treasury officials: Told RBI don't see need for big OMO sale Oct-Dec
--Treasury officials: Told RBI visibility on liquidity lower post Dec
--Treasury officials: Told RBI cash mismatch in system may continue
--Treasury officials: Told RBI dollar/rupee trading range too tight
--Treasury officials: Told RBI its FX ops preventing mkt development
--Treasury officials: Told RBI its FX ops increasing cos' complacency
By Aaryan Khanna
NEW DELHI – Treasury officials told the Reserve Bank of India on Thursday that they expect liquidity to remain near neutral or in a deficit until the end of December, bank and primary dealership officials in the know of the development said today. The officials told the central bank there was no need for it to hold large bond sales under open market operations to drain liquidity till then.
The RBI had invited treasury officials from banks and primary dealerships on Thursday to seek feedback on market developments.
"In this quarter, most of the market was quite determined to tell the RBI that liquidity conditions are not going to be in enough surplus to be inflationary," one of the officials who attended the meeting said. "Whether the RBI agrees with that or not is up to them. They didn't say anything in the meeting, just asked questions."
At the start of trade today, liquidity in the banking system was estimated to be in a deficit of 169.51 bln rupees, as against 545.34 bln rupees on Thursday. This was after about 1.75 trln rupees of inflows from the government's month-end spending and the redemption and coupon of the 4.48%, 2023 bond.
On Oct 6, after the monetary policy review, RBI Governor Shaktikanta Das had said the central bank was considering bond sales through auction under its open market operations to drain liquidity from the financial system.
In a note last month, Nomura estimated that liquidity will not be in surplus of more than 158 bln rupees at the start of any week in the current quarter ending December. In a research report of August, State Bank of India estimated banks need 500-700 bln rupees as its precautionary liquidity in view of the nature of round-the-clock settlement.
Informist had last week reported that the RBI had invited treasury officials from some institutions to seek feedback on market developments. The conversation centred around the central bank's foreign exchange and liquidity operations.
In the week ended Oct 20, the central bank sold 41.75 bln rupees worth of gilts in the secondary market, the most since the last week of 2021. Its bond sales have totalled 174.40 bln rupees from Sep 15 to Oct 27, according to latest data.
Market participants have speculated the quantum of bond sales through auctions would likely be larger than its sales in the secondary market. Since 2012, the smallest OMO bond auction the RBI has conducted was worth 70 bln rupees in 2013.
At Thursday's meeting, treasury officials told RBI they did not have much clarity on the expected inflows and inflows into the banking system after December. The expected addition to rupee liquidity from India's inclusion on global bond indices was expected to begin only in 2024, and the quantum of that was yet unknown. In addition, the government's spending would also ramp up in Jan-Mar as it deploys its cash balance and gears up for the General Elections in summer.
JP Morgan said in September it will add India's government bonds to its emerging market bond index suite starting Jun 28 next year. The inflows associated with overseas investment would be around $20 bln-$22 bln from JP Morgan and $35 bln-$40 bln if Bloomberg also adds Indian bonds to its widely-tracked indices, treasury officials told the RBI.
In October, Bloomberg listed the eligibility of Indian bonds on its Global Aggregate and the Emerging Market Local Currency Indices as one of the primary topics for discussion in its 2023 fixed income advisory councils, taking place between October and November.
FOREX MARKET
On the foreign exchange front, treasury officials told the central bank that its operations had kept the dollar/rupee exchange rate in a range that was "too tight". The RBI has persistently sold dollars in the last two months, as the rupee neared its record low of 83.29 a dollar. The dollar/rupee spot level has traded in a narrow 83.20-83.28 band for most of October.
"Others were also saying how much the aggressive forex operations were preventing market development, and led to complacency among customers," a treasury official said.
Importers and exporters have reduced their forex hedging, as the RBI's operations have lowered the volatility in the market, leaving them vulnerable to a large movement in the exchange rate, treasury officials told the RBI. The Indian rupee has been among the emerging market's most stable currencies this year despite a rise in the strength of the dollar, depreciating only 0.7% in 2023.
The market also told the RBI officials that the cash mismatches in the interbank call market were likely to persist. At the policy review in October, Das said it was desirable that banks having surplus funds explore lending opportunities in the interbank call market, reducing the dependence on the RBI's Standing Deposit Facility and Marginal Standing Facility.
"The RBI has been pushing banks to lend in the call market, but we just told them quite matter of factly that there was unlikely to be a fall in the MSF and SDF drawings," another treasury official said. "The market ends at 1700 IST, and the liquidity requirements are 24x7. We explained to them that it doesn't make any sense for us; everyone needs buffers."
The meeting was concise, as much of the feedback had been passed along informally over the past weeks, and was presented formally to the RBI's Financial Markets Operations Department, the officials said. End
US$1 = 83.29 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ranjana Chauhan
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (11) 4220-1000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2023. All rights reserved.
Informist, Friday, Nov 3, 2023
--Treasury officials: Told RBI don't see need for big OMO sale Oct-Dec
--Treasury officials: Told RBI visibility on liquidity lower post Dec
--Treasury officials: Told RBI cash mismatch in system may continue
--Treasury officials: Told RBI dollar/rupee trading range too tight
--Treasury officials: Told RBI its FX ops preventing mkt development
--Treasury officials: Told RBI its FX ops increasing cos' complacency
By Aaryan Khanna
NEW DELHI – Treasury officials told the Reserve Bank of India on Thursday that they expect liquidity to remain near neutral or in a deficit until the end of December, bank and primary dealership officials in the know of the development said today. The officials told the central bank there was no need for it to hold large bond sales under open market operations to drain liquidity till then.
The RBI had invited treasury officials from banks and primary dealerships on Thursday to seek feedback on market developments.
"In this quarter, most of the market was quite determined to tell the RBI that liquidity conditions are not going to be in enough surplus to be inflationary," one of the officials who attended the meeting said. "Whether the RBI agrees with that or not is up to them. They didn't say anything in the meeting, just asked questions."
At the start of trade today, liquidity in the banking system was estimated to be in a deficit of 169.51 bln rupees, as against 545.34 bln rupees on Thursday. This was after about 1.75 trln rupees of inflows from the government's month-end spending and the redemption and coupon of the 4.48%, 2023 bond.
On Oct 6, after the monetary policy review, RBI Governor Shaktikanta Das had said the central bank was considering bond sales through auction under its open market operations to drain liquidity from the financial system.
In a note last month, Nomura estimated that liquidity will not be in surplus of more than 158 bln rupees at the start of any week in the current quarter ending December. In a research report of August, State Bank of India estimated banks need 500-700 bln rupees as its precautionary liquidity in view of the nature of round-the-clock settlement.
Informist had last week reported that the RBI had invited treasury officials from some institutions to seek feedback on market developments. The conversation centred around the central bank's foreign exchange and liquidity operations.
In the week ended Oct 20, the central bank sold 41.75 bln rupees worth of gilts in the secondary market, the most since the last week of 2021. Its bond sales have totalled 174.40 bln rupees from Sep 15 to Oct 27, according to latest data.
Market participants have speculated the quantum of bond sales through auctions would likely be larger than its sales in the secondary market. Since 2012, the smallest OMO bond auction the RBI has conducted was worth 70 bln rupees in 2013.
At Thursday's meeting, treasury officials told RBI they did not have much clarity on the expected inflows and inflows into the banking system after December. The expected addition to rupee liquidity from India's inclusion on global bond indices was expected to begin only in 2024, and the quantum of that was yet unknown. In addition, the government's spending would also ramp up in Jan-Mar as it deploys its cash balance and gears up for the General Elections in summer.
JP Morgan said in September it will add India's government bonds to its emerging market bond index suite starting Jun 28 next year. The inflows associated with overseas investment would be around $20 bln-$22 bln from JP Morgan and $35 bln-$40 bln if Bloomberg also adds Indian bonds to its widely-tracked indices, treasury officials told the RBI.
In October, Bloomberg listed the eligibility of Indian bonds on its Global Aggregate and the Emerging Market Local Currency Indices as one of the primary topics for discussion in its 2023 fixed income advisory councils, taking place between October and November.
FOREX MARKET
On the foreign exchange front, treasury officials told the central bank that its operations had kept the dollar/rupee exchange rate in a range that was "too tight". The RBI has persistently sold dollars in the last two months, as the rupee neared its record low of 83.29 a dollar. The dollar/rupee spot level has traded in a narrow 83.20-83.28 band for most of October.
"Others were also saying how much the aggressive forex operations were preventing market development, and led to complacency among customers," a treasury official said.
Importers and exporters have reduced their forex hedging, as the RBI's operations have lowered the volatility in the market, leaving them vulnerable to a large movement in the exchange rate, treasury officials told the RBI. The Indian rupee has been among the emerging market's most stable currencies this year despite a rise in the strength of the dollar, depreciating only 0.7% in 2023.
The market also told the RBI officials that the cash mismatches in the interbank call market were likely to persist. At the policy review in October, Das said it was desirable that banks having surplus funds explore lending opportunities in the interbank call market, reducing the dependence on the RBI's Standing Deposit Facility and Marginal Standing Facility.
"The RBI has been pushing banks to lend in the call market, but we just told them quite matter of factly that there was unlikely to be a fall in the MSF and SDF drawings," another treasury official said. "The market ends at 1700 IST, and the liquidity requirements are 24x7. We explained to them that it doesn't make any sense for us; everyone needs buffers."
The meeting was concise, as much of the feedback had been passed along informally over the past weeks, and was presented formally to the RBI's Financial Markets Operations Department, the officials said. End
US$1 = 83.29 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ranjana Chauhan
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (11) 4220-1000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2023. All rights reserved.
