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Journalism of Courage
For the third time this week a Reserve Bank of India auction failed to go through smoothly as banks did not subscribe fully to the Rs 15,000 crore sale of government bonds on Friday.
This is unprecedented for the Indian debt market. The benchmark 10-year bond,the most liquid paper in the market recorded its worst week in four-and-a-half years,with its yield rising 40 basis points,disrupting government bond sales and affecting the RBIs efforts to mop up liquidity and strengthen the rupee.
Since the auctions did not go through fully,this means the next auction of government securities for Rs 12,000 crore next week is going to be watched carefully by the markets. The interest rates on government papers have risen,and this too will put pressure on the Centre to manage its fiscal deficit more tightly.
As per Budget 2013-14,the finance ministry has taken on a massive interest burden of Rs 3,70,684 crore which is 17 per cent more than last year. This is expected to rise even more as rupee dips.
The devolvement on primary dealers on Friday was Rs 3,526 crore. Primary dealers had to subscribe to this portion as per their underwriting commitments.
On the other hand,the RBI had to intervene in the forex market on Friday despite the recent hike in overnight finance rates and other liquidity tightening measures.
The rupee resumed lower at 59.72 a dollar from the previous close of 59.67 and declined to a low of 59.88. It bounced back on dollar selling by exporters and some banks,apparently at the behest of the RBI,and touched a high of 59.30 before settling at 59.35,a rise of 32 paise.
Experts dont expect much from the RBIs recent measures other than disruption in bond sales and yields. We do not expect RBI tightening to significantly impact the rupee. It may impact growth,although it is perceived to be temporary, said Indranil Sen Gupta,India economist,DSP Merrill Lynch.
With the RBIs auctions failing to get the desired results,theres speculation that the central bank may opt for a hike in cash reserve ratio.
NRI bonds: Re-issuing 7-9%
5-year forex-denominated NRI bond such as the 1998 Resurgent India Bonds or 2001 India Millennium Deposits that raised $5 billion each. This could fetch about $20 billion,says DSP Merrill Lynch
Listing rupee debt in
London,Singapore: DSP-ML says this would not be any different from trading in Mumbai
Forex sovereign debt:
Either directly or in the name of a government-backed infrastructure lending facility. DSP-ML estimates this could bring in $5-8 billion
