- Given that that RBI has started draining liquidity from the banking system, it’s unlikely to announce direct bond purchases. But it may well use open-market operations and liquidity-neutral Operation Twists, in which it buys longer bonds and sells shorter-dated notes, according to Deutsche Bank.
- The RBI halted announced bond purchases in October. It bought 2.2 trillion rupees of bonds last fiscal year.
- The RBI may make leeway for banks to increase debt purchases by allowing them to hold more securities under a system which exempts bonds from losses from market fluctuations.
- Currently, banks can hold 22% of deposits in government bonds under the so-called held-to-maturity portfolio. The RBI may raise that to 23%, said Shailendra Jhingan, chief executive at ICICI Securities Primary Dealership Ltd. Alternatively, the RBI may also consider extending the 22% relaxation, according to Citigroup Inc.
- The central bank has announced a second $5 billion dollar-rupee sell/buy swap, which takes out rupee liquidity by selling dollars. That may help create space to conduct open-market bond purchases, according to IDFC FIRST Bank Ltd.
- The RBI will have to provide 2–2.5 trillion rupees of open-market support in first half of the fiscal year, according to Citigroup Inc.
- The RBI has been supporting the rupee with dollar sales in the currency market. As this intervention leads to a draining of rupees from the banking system, the RBI can resort to aggressive FX sales, creating room for bond purchases, according to Kotak Mahindra.
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