India’s central bank has announced that the country will buy back 400 billion rupees ($4.81 billion) worth of government bonds. The bonds India seeks to buy are four government bonds with maturity dates in the second half of 2024, said the Reserve Bank of India (RBI) in a statement.
This will be the fourth buyback the central bank has announced after its previous three attempts did not garner investor attention. Moreover, it comes a week after the central bank, on behalf of the government, accepted bids to buy back 52.7 billion rupees worth of bonds. This buyback saw little interest from investors, urging the central bank to accept bids to buy back less than 10 percent of its initial target of 600 billion rupees. The 52.7-billion-rupees buyback was the government’s third time trying to buy back bonds with an aim to increase liquidity in India’s financial markets.
Banking sector liquidity
In an effort to inject liquidity into the banking sector, the central bank held a 4-day variable rate repo auction on Monday. It received bids worth 978.8 million rupees from banks against the notified amount of 750 million rupees. This reflects the high demand for cash amid tight liquidity conditions in India.
In addition, India’s government announced earlier this month that it will decrease the supply of Treasury bills by about 600 billion rupees until the end of June.
Read: Use quantitative easing carefully, urges ECB official
Government spending
The government’s spending will likely remain slow in the next few months as the new government takes the lead. Slow spending, in addition to government bond buybacks, should support the decline in India’s interest rates. In addition, bond buybacks should also support the banking system’s liquidity, which has been facing an average deficit of 1.2 trillion rupees so far in May.
The auction for the government bonds will occur on May 30 and the government will announce the results on the same day. Meanwhile, the settlement will occur on May 31.
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