RBI sparks confusion despite $4.1 billion in cash injections
Quotes

RBI sparks confusion despite $4.1 billion in cash injections

Last Updated: Tuesday, August 12, 2014, 20:17
 
 Comment 0
 
RBI sparks confusion despite $4.1 billion in cash injections
Mumbai: The Reserve Bank of India`s(RBI) announcement of around 250 billion rupees ($4.09 billion) worth of injections via term repos were intended to ease concerns about a cash crunch, but instead added to uncertainty and volatility in the money markets, traders said.

The RBI announced two separate overnight variable rate repos on Monday, worth about 50 billion rupees each, and followed up on Tuesday by announcing a 7-day term repo auction that could inject up to 150 billion rupees.

Although the overnight cash rate closed at 8.00/8.05 percent, in line with the repo rate, it fluctuated in a wide 8.00 percent to 8.80 percent range through the session.

Traders said such rapid-fire announcements of these term repos, or cash-for-loans transactions, far from easing market sentiment, created confusion about the central bank`s rationale.

"Why do overnight repos when they could have simply announced a larger amount for a slightly longer term?" asked a senior trader, questioning the need for two separate overnight repos preceding the auction of a 7-day term repo.

The RBI did not have immediate comment.

The announcements come after RBI Governor Raghuram Rajan said last week the central bank would consider issuing more frequent and shorter-dated repos, or cash-for-loans transactions to smoothen volatility in money markets.

The RBI began 7- and 14-day term repos in October, but traders complained they were announced too sporadically, making it hard for banks to manage their near-term cash needs.

Still, some analysts noted that despite the confusion on Tuesday, the injection of funds by the RBI would prove a positive for markets.

"I believe the market is unnecessarily worrying when enough liquidity is there in the system through term repo and overnight repos," said N.S. Venkatesh, treasurer at IDBI Bank in Mumbai said.



Reuters

First Published: Tuesday, August 12, 2014, 20:17


Comments


comments powered by Disqus
India`s top ten billionaires
India`s top ten billionaires
Pradhan Mantri Jan Dhan Yojana - In Pics
Pradhan Mantri Jan Dhan Yojana - In Pics
Apple Smartwatch unveiled
Apple Smartwatch unveiled
Apple iPhone 6, iPhone 6 plus
Apple iPhone 6, iPhone 6 plus
Samsung Galaxy Tab 4 Nook
Samsung Galaxy Tab 4 Nook

Web Wrap
Contact Us : Privacy Policy : Legal Disclaimer
Copyright © Zee Media Corporation Ltd. All rights reserved