Finance

Indian banks say trading hit by central bank’s debt sale plan, rupee falls


Author: Dharamraj Dhutia

MUMBAI (Reuters) – Indian banks have told the central bank that its plans to sell government bonds and its intervention in foreign exchange markets have hurt trading volumes, four bankers said on Friday.

Reserve Bank of India (RBI) officials met with some lenders on Thursday to discuss the issues, among others, according to bankers aware of the developments.

“Since the RBI announced its intention to conduct open market bond sales, trading volumes have fallen sharply and yields have fallen into a very tight range,” a banker said.

“There’s almost no interest on either side to pursue big jobs.”

All bankers spoke on condition of anonymity because they were not authorized to speak to the media.

The Reserve Bank of India did not respond to an email from Reuters seeking comment.

The central bank said on October 6 that it planned to sell bonds through auctions to manage liquidity in the banking system.

The unexpected announcement pushed bond yields higher.

Since Oct. 9, the 10-year benchmark yield has hovered in a narrow 11 basis points range due to uncertainty over the timing and tenor of the bond issuance, hurting trading volumes.

Meanwhile, a lack of volatility in currency markets over the past few weeks has also hit trading activity at banks.

“The rupee market is effectively dead due to heavy central bank intervention,” said a trader at a private bank.

“Such low volatility has a significant impact on proprietary book activity.”

The rupee remained in a narrow range of 83.04-83.28 against the US dollar in October, its narrowest range since 2004.

According to Kotak Securities, the pair’s intraday volatility has halved this fiscal year compared to the previous fiscal year.

At Thursday’s meeting, the central bank asked banks about the uneven distribution of liquidity in the banking system and discussed upcoming green bond sales to understand demand, bankers said.

Last month, the central bank urged banks to lend surplus funds to peers on the interbank money market.

(Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)



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