RBI 2 Trillion Rupee Auction Lifts Indian Bond Yields
The Reserve Bank of India announced a 2 trillion rupee reverse repo auction to manage surplus liquidity. This move pushed benchmark bond yields to 7% on Friday.
The central bank of India has introduced a plan to withdraw liquidity from the banking system, causing a stir in the bond and swap markets. This move comes as traders were anticipating a continued liquidity surplus following recent market volatility. The Reserve Bank of India announced on Friday that it will conduct a variable rate reverse repo (VRRR) auction for 2 trillion rupees ($21.58 billion). This represents the first such operation in four months, aimed at addressing a banking system liquidity surplus that reached a near four-year high of approximately 4.5 trillion rupees, or about 1.8% of bank deposits.
Following the announcement, bond yields climbed by 3 to 5 basis points, with the benchmark yield briefly reaching the 7% threshold. Simultaneously, overnight index swap rates experienced an increase of 7 to 10 basis points from their daily lows. Overnight rates had been hovering about 17 basis points below the repo rate, which prompted the central bank to intervene with the VRRR.
