What Else do You Need? RBI has Given Ev­ery­thing

The shift in RBI’s liq­uid­ity man­age­ment pol­icy lifts mood in deal­ing rooms

The Economic Times - - Economy -

Mum­bai: Tues­day­wasn’tsobad­for bond traders – they had rea­sons to cheer af­ter months of de­spon­dency, doubt and anx­i­ety. The Re­serve Bankof In­dia’sbi-month­ly­pol­i­cyon Tues­day of­fered them some­thing to look for­ward to and they sud­denly weren’t com­plain­ing against the cen­tral bank, or its gover nor, Raghu­ram Ra­jan.

It wasn’t the quar­ter per­cent­age point rate cut that lifted their spir­its, but a shift in liq­uid­ity man­age­ment pol­icy that struck a chord in deal­ing rooms. RBI’s liq­uid­ity man­age­ment sys­tem would in fact en­sure that there are faster re­sults which would lead bond yields to dip, and push prices up. “With more open mar­ket opera- tions in the off­ing, we now see more op­por­tu­nity for trad­ing gains,” said Deven­draDash,ase­nior­bond­dealer at DCB Bank. “Liq­uid­ity mea­sures have def­i­nitely buoyed bond mar­kets more than a 25 bps rate cut.”

In fact, bond deal­ers had an­tic­i­pated RBI’s lat­est rate ac­tion, but what they didn’t bar­gain for was such a ro­bust set of l iq­uid­ity mea­sures aimed at curb­ing the pos­si­bil­ity of a cash crunch in the sys­tem. The cen­tral bank has ac­knowl­edged liq­uid­ity man­age­ment in two ways: short term, and per­ma­nent durable liq­uid­ity, in line with broad mar­ket think­ing. “What else do you need… RBI has given ev­ery­thing. This is Guv Ra­jan’s mas­ter stroke es­tab­lish­ing his cred­i­bil­ity once again,” said a

head trea­surer from a large bank, who till last week was crit­i­cal of the cen­tral bank gover­nor.

Open mar­ket op­er­a­tions, un­der whichRBIbuysorsells­gov­ern­ment bonds from/to the sec­ondary mar­ket, also drive yields.

Our es­ti­mate sug­gests that RBI will buy at least more than ₹ 1 lakh crore gov­ern­ment bonds this year alone. If we take strate­gic trade po­si­tions, it will help us to make money, said a dealer from a large bond house. The bench­mark bond yields on Tues­day rose to 7.46%, four ba­sis points higher than pre­vi­ous day’s close. Al­though it dipped to 7.37% dur­ing the day im­me­di­ately af­ter the RBI pol­icy an­nounce­ment, it erased gains on in­vestor profit book­ing. Next few months, the bench­mark bond yield is ex­pected to fall in the range of 7.25-7.15% from 7.46% at present.

With more open mar­ket op­er­a­tions in the off­ing, mar­ket now sees more op­por­tu­nity for trad­ing gains

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