RBI to buy 360b rupees of govt bonds

MUMBAI: The Indian central bank said yesterday it would pump 360 billion rupees (RM20.49 billion) into money markets this month in its latest attempt to stem fears of a cascading credit crunch, pledging to buy back bonds after the government dramatically reduced its own borrowing by 700 billion rupees on Friday.

Indian bond yields dropped sharply yesterday to their lowest in more than a month as investors took in the news.

The benchmark 10-year bond yield dropped as much as 12 basis points to 7.9 per cent in opening deals, its lowest level since August 29. By 0535GMT, however, it was down seven basis points at 7.95 per cent.

“Markets are cheering after a long time. The cut in borrowing and the (bond buying) open market operation have both helped equally,” said Harish Agarwal, a fixed income trader with First Rand Bank.

“But I fear profit booking will keep it between 7.95 and eight per cent levels.”

The Reserve Bank of India (RBI) said yesterday it had decided to buy a total of 360 billion rupees worth of government bonds under its open market operations this month, in a bid to ease liquidity conditions in the market.

Traders will continue to monitor domestic markets for further cues ahead of the RBI monetary policy meeting at the end of the week.