Indian lenders report weakness in the rupee due to the RBI's debt liquidation scheme

 Indian lenders report weakness in the rupee due to the RBI's debt liquidation scheme

According to bankers informed of the situation, representatives from the Reserve Bank of India (RBI) met with a limited group of lenders on Thursday and spoke about a number of topics, including these.

Four bankers said on Friday that the central bank has been informed by Indian lenders that trade volumes have been negatively impacted by the bank's intention to sell government bonds and its involvement in the foreign currency market.

According to bankers informed of the situation, representatives from the Reserve Bank of India (RBI) met with a limited group of lenders on Thursday and spoke about a number of topics, including these.

"Since the RBI publicly stated its intention to conduct open market bond sales, volumes of trading have gone downward sharply and yields are stuck in a very confined range," a banker said.

"There is hardly any enthusiasm to go for big positions on either side."

Since they are not permitted to communicate with the media, each banker asked to remain anonymous.

When Reuters emailed the RBI for comment, they did not respond.

On October 6, the central bank announced its intention to control the liquidity of the banking sector by holding bond auctions.

The unexpected declaration caused bond rates to rise.

Volumes have suffered as a result of the 10-year benchmark yield's tight 11-basis-point range since October 9. This is because the timing and duration of the bond sales are unpredictable.

Additionally, banks' trading activity has been negatively impacted by the currency market's lack of volatility over the last several weeks.

A dealer from a private bank said, "The rupee market is literally dead because of the heavy central bank interventions."

"Such low volatility has had a major impact on the activity on the prop (proprietary) book."

The rupee's range versus the US dollar in October was the tightest since 2004: 83.04–83.28.

According to Kotak Securities, the pair's intraday volatility has decreased by half this fiscal year compared to previous.

The bankers stated that during the meeting on Thursday, the central bank questioned banks about the unequal distribution of liquidity in the banking sector and also spoke about an impending sale of green bonds to gauge demand.

The central bank had pushed banks to lend excess money to one other in the interbank call money market last month.