(Bloomberg) -- Traders in India are betting the central bank may refrain from doing bond sales in the coming months after the monetary authority indicated a reduced need to deploy the tool.
Reserve Bank of India Governor Shaktikanta Das Friday said that liquidity tightened more than envisaged in the last policy, and thus the need for such debt sales hasn’t arisen. Das shocked the markets in October by suggesting the RBI may do open-market bond sales, fueling the biggest rout in a year. The option of doing OMO sales remains open if and when required, Das said in a post policy briefing.
The 10-year yield can drop to 7.05% by March, especially if the RBI pivots on its stance in the next year. The yield was stable at 7.24% on Friday after RBI largely stuck to its script and kept rates on hold.
“The unexpected change in liquidity situation due to various factors mentioned by RBI, the OMO sales seem unlikely now and even in the last quarter of FY24,” said Abhisek Bahinipati, fixed-income trading head at Mirae Asset Capital Markets India. “As a result, bonds are more likely to celebrate this kind of news.”
The overall tightening of liquidity conditions is attributed mainly to higher currency leakage during the festive season, government cash balances, and Reserve Bank’s market operations, Das said.
“We have been insisting OMO sales were merely announced last time as a way to depict implied policy bias for higher rates and a way to offer higher risk premia to the world and to anchor the rupee – none of which turned out to be a worry,” said Madhavi Arora, lead economist at Emkay Global Financial Services Ltd.
READ: INDIA REACT: RBI Signals No Bond Sales Needed in Dovish Hold
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