India wants RBI to lower bond yields -government source

  • India has asked its central bank to either buy back government bonds or conduct open market operations to cool yields that have hit their highest since 2019, as inflation risks push foreign investors to sell, a government source told Reuters.
  • The 10-year benchmark bond ended at INR93.69 on 9 May 22, yielding 7.46%, after earlier reaching a high of 7.49%.
  • “The discussion with the RBI (Reserve Bank of India) is at an advanced stage as current yields are not at comfortable levels,” the government official, with direct knowledge of the matter, said on condition of anonymity.
  • The official said government expects the RBI to conduct a switch operation, offering investors a chance to exchange their short-dated bonds for debt with a longer maturity, or to buy back government bonds within the next two weeks.
  • The official said RBI will take a decision on the timing and size of any bond purchases next week.
  • The request from the government could complicate the RBI’s policy of withdrawing liquidity from the market, which marks a shift away from the ultra-loose monetary stance it took during the COVID-19 pandemic.
  • New Delhi also expects the RBI to intervene in the rupee market to contain volatility after the currency closed at its lowest level of 77.47 against the dollar, the government official said.
  • Foreign portfolio investors have sold USD697mn of government securities since 1 Apr 22 and USD1.18bn in 2022 in total, according to traders.
  • “I have exited India completely for now,” one trader with a foreign fund, who did not want to be named, told Reuters. He has sold USD200mn of government securities and USD70mn of equities.
  • “RBI needs to raise more rates to fight inflation.” He also said the RBI’s intervention in the market was not sustainable as forex reserves were depleting, and that he would re-enter the market only after the central bank raises rates further and the rupee closes in toward 80 against the dollar.

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