Indian lenders report slow rupee and flag trading impacted by CENBAN's debt selling strategy.
Indian lenders flag trading hit from cenbank's debt sale plan, dull rupee
On Friday, four Indian bankers issued a warning, claiming that trading volumes had been negatively impacted by the central bank's move to sell government bonds and interfere in the foreign exchange market.
Bankers who were made aware of the meeting said that on Thursday, representatives from the Reserve Bank of India (RBI) met with a small group of lenders to talk about these issues and other matters.
“Since the RBI has announced its intention to conduct open market bond sales, trading volumes have gone down sharply and yields are stuck in a very narrow range,” one of the bankers said.
“There is hardly any interest to go for big positions on either side.”
Because they are not permitted to speak to the media, all of the bankers requested anonymity.
The RBI did not respond to an email from Reuters requesting comment.
On October 6, the central bank announced its intention to sell bonds through auctions in order to control banking system liquidity.
Bond yields rose as a result of the unexpected news.
Due to uncertainty about the timing and tenor of bond sales, which has hindered volumes, the 10-year benchmark yield has been trapped in a narrow 11-basis-point range since October 9.
Meanwhile, a lack of volatility in the currency market in recent weeks has hampered bank trading activity.
“The rupee market is literally dead due to heavy central bank interventions,” a trader with a private bank said.
“Such low volatility has significantly impacted the activity on the prop (proprietary) book.”
The rupee stayed in a narrow 83.04-83.28 band against the U.S. dollar in October, the narrowest range since 2004.
The intraday volatility in the pair has halved this fiscal year from the last fiscal, according to Kotak Securities.
At the meeting on Thursday, the central bank queried banks on the skewed liquidity distribution in the banking system and also discussed an upcoming sale of green bonds to get a sense of the demand, the bankers said.
Last month, the central bank had nudged banks to lend surplus funds to their peers in the interbank call money market.