India’s RBI to inject 2 trillion rupees via fresh bond buys, US$10 billion in FX swap

[MUMBAI] India’s central bank announced fresh measures aimed at boosting banking liquidity, including government bond purchases and a foreign-exchange (FX) swap.

The Reserve Bank of India (RBI) will buy two trillion rupees (S$28.7 billion) worth of bonds in four tranches this month and January. It will also conduct a US$10 billion FX swap next month, it said on Tuesday (Dec 23).

The RBI’s bond purchases and FX swaps are expected to offset the cash drain from its US dollar sales in the currency market to support a weakening rupee, which has emerged as Asia’s worst-performing currency this year.

The cash measures may also cool off bond yields, and cushion an economy facing punitive US tariffs.

The announced purchases are on the higher side of market expectations and should help yields move lower toward the 6.5 per cent level, said .

The yield on the benchmark 10-year note has climbed by about 12 basis points this month to 6.6 per cent, amid tightening banking liquidity and higher supply of state debt. 

The banking liquidity slipped into a deficit of 727 billion rupees on Dec 22, against a surplus of 2.6 trillion rupees earlier this month, indicated data compiled by Bloomberg Economics. 

The RBI’s latest measures will add to liquidity injections, worth about US$16 billion since early December, via bond purchases and a swap. It has also been adding cash via its short-term operations.

The RBI will buy bonds in four tranches of 500 billion rupees each on Dec 29, Jan 5, Jan 12 and Jan 22, while the three-year FX swap auction will be held on Jan 13, the central bank said. 

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The monetary authority said it will continue to monitor evolving liquidity and market conditions. BLOOMBERG