RBI data show central bank buys debt just as government sells it

By Subhadip SircarThe Reserve Bank of India bought chunks of debt just after the government sold it, the latest data showed, further fueling talk that the central bank is supporting the nation’s fund-raising efforts.The central bank reported 149.89 billion rupees ($2 billion) worth of sovereign debt purchases for April 16, just one day after bills with the same value were mopped up by a few bids at an auction, according to data released on Friday.Traders have been speculating over the central bank’s role in bill auctions this month as a handful of bids lapped up sales and drove yields to the lowest in more than a decade. While the RBI hasn’t taken part in any government auctions, the latest data suggest that it could be buying short-term debt in the secondary market within hours of a sale.“Friday’s data suggest RBI is buying treasury bills, which will anchor the short-end” of the yield curve, said Naveen Singh, head of fixed income at ICICI Securities Primary Dealership Ltd. Longer-maturity bonds though will suffer without a series of purchases by the central bank, he said.The RBI has so far refrained from large-scale bond purchases, and a law forbids it from directly buying government debt at auctions unless there are exceptional circumstances. A spokesman for the central bank didn’t respond to queries seeking comments on Monday.What happened on April 15:The government sold 250 billion rupees worth of bills. When details of the auction came through, traders noticed that a single buyer bought all the 182-day notes, while two bids purchased about 70 billion rupees of the 364-day bills at higher prices than market estimates.The bidder or bidders for those bills, worth a combined 149.89 billion rupees, probably didn’t hold onto the debt for long.Settlement data reported by the Clearing Corp. of India later showed bills with the same tenor and matching amount were sold on the day in the secondary market. The transactions mirrored the auction, with a single buyer acquiring all the 182-day notes, and two trades taking out the 364-day bills, the data showed, without revealing the identity of the purchasers.Data from the clearing house also showed that state-owned banks had net sold 126 billion rupees of bills that day. Meanwhile, institutions in a category known as ‘Others’, which includes the central bank, bought some 156 billion rupees of notes on April 15.The central bank reports debt purchases on settlement date, which tends to be a day after the transactions. The data published on Friday didn’t give a breakdown of what was bought.Traders say a similar transaction pattern was seen at last week’s sale of treasury bills, raising speculation that state lenders have been buying the notes at government auctions to resell to the RBI.The central bank hasn’t participated in primary debt auctions, according to a Cogencis news agency report on Monday citing Governor Shaktikanta Das. It hasn’t taken a view on debt monetization, Das said. The central bank sporadically buys debt in the secondary market and discloses those transactions every week.With the country in lockdown due to the coronavirus pandemic, Prime Minister Narendra Modi’s government is trying to manage a liquidity crunch with a lot more short-term borrowings. India’s central bank probably took a roundabout route to finance the budget deficit given that the law bars the RBI from directly buying sovereign debt, according to IDFC Asset Management Ltd.“The RBI will continue to support the market as uncertainty continues over the nature of the fiscal stimulus, and how long the pandemic will continue,” said Debendra Dash, head of fixed income at AU Small Finance Bank in Mumbai.

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