RBI Ratchets Up Liquidity Draining Operations Before Policy Meet
India’s central bank intensified its operations to remove cash from the banking system just days ahead of the monetary policy decision due on Thursday.
(Bloomberg) -- India’s central bank intensified its operations to remove cash from the banking system just days ahead of the monetary policy decision due on Thursday.
The Reserve Bank of India drained about 921 billion rupees ($11 billion) in four auctions since Friday, according to the central bank. The operations come as the rate at which banks borrow overnight fell below the benchmark repo rate. That may indicate the RBI is unlikely to relent on its restrictive monetary policy stance when inflation is still holding much above its 4% inflation target.
“It’s possible that the RBI is signaling it won’t change its stance through these measures, but it’s better to wait for the policy announcement,” said Ritesh Bhusari, deputy general manager - treasury at South Indian Bank Ltd. “It’s pretty clear, the RBI doesn’t want the overnight rates to dip below the repo rate.”
The yields on benchmark 10-year bonds slid to a seven-month low last week after the government unveiled a lower-than-estimated borrowing plan in the annual budget. That led some traders to speculate that it may prompt the central bank to signal a dovish monetary policy tilt.
The RBI is likely to keep the benchmark interest rates unchanged on Thursday, according to a Bloomberg survey of economists.
--With assistance from Malavika Kaur Makol.
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