BofA sees Ra­jan pour­ing in funds as In­dia's cash crunch wors­ens

The Pak Banker - - FRONT PAGE -

Bank of Amer­ica Mer­rill Lynch says In­dia's cen­tral bank should set a sched­ule for bond pur­chases to help bring down lend­ing rates amid a cash crunch in the fi­nan­cial sys­tem.

The Re­serve Bank of In­dia has bought 570 bil­lion ru­pees ($8.5 bil­lion) of sov­er­eign debt since re­sum­ing open-mar­ket op­er­a­tions, or OMOs, in early De­cem­ber af­ter al­most two years. It plans to buy an­other 150 bil­lion ru­pees of notes on Thurs­day. The bench­mark 10-year yield is 82 ba­sis points above the mon­e­tary au­thor­ity's key re­pur­chase rate that Gov­er­nor Raghu­ram Ra­jan re­duced by 125 ba­sis points last year.

"A high 10-year yield has pre­vented banks from cut­ting lend­ing rates fur­ther" de­spite the RBI's eas­ing, BofA econ­o­mists Ab­hishek Gupta and In­dranil Sen Gupta wrote in a re­port. They ex­pect the cen­tral bank will add an­other 200 bil­lion ru­pees through OMOs this month and pre­dict such pur­chases will rise to 1.8 tril­lion ru­pees in the year start­ing April 1, from 1.1 tril­lion ru­pees.

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