RBI's Rs 3-trn bond buys this fiscal could distort market: Deutsche Bank

The Indian central bank’s purchases of bonds to inject cash into the financial system may have an unintended effect of distorting bond prices, according to Deutsche Bank AG.

The Reserve Bank of India should instead consider cutting the cash reserve ratio, a move it last resorted to six years ago, as various reserve requirements enforced by the authority so far are curbing deposit growth and transmission of rate cuts, said Srinivas Varadarajan, managing director for fixed income and currencies at the bank’s Indian unit.

“Open-market operation interventions beyond a point do have an impact on the micro structure of the government bond