MUMBAI (Dow Jones)--Indian government bonds traded a tad higher Monday ahead of the likely release later in the evening of details about a government bond buyback by the central bank. The most-traded 8.13% 2022 bond ended at INR100.95, up from INR100.87 on Friday, although the thinly traded benchmark 7.80% 2020 bond remained under pressure, slipping to INR99.25, from INR99.34. The choice of notes to be bought back at a scheduled INR120 billion central bank bond buyback is likely to be a key cue for a cash-strapped bond market. Banks have been forced to borrow more than INR1.5 trillion daily at the liquidity adjustment facility windows as advance tax payments by corporates added to a liquidity shortage caused by a persistent gap in the pace of loan and deposit growth. The inclusion of popular and widely held bonds at the auction may mean the market's participation into the buyback will be stronger and the Reserve Bank of India may pump more cash in through the auction. This would free up cash positions among market players and boost demand for bonds among participants who may otherwise have avoided spending scarce liquidity on debt. But with local food prices and global oil prices on the rise, the threat of another wave of inflationary pressures is likely to keep bonds in check, traders said. In the currency market, the Indian rupee fell against the U.S. dollar as month-end demand for the greenback from oil importers and weak local stocks weighed on the local unit. Late Monday, the dollar was at INR45.25, up from INR45.12 late Friday. But losses were limited as traders remained wary of sticking their necks too far out in a thin market. Most traders expect the dollar to remain within a tight range for the rest of the week, although some predict a slight upside bias due to importer demand for the greenback as the quarter end approaches. The Bombay Stock Exchange's Sensitive Index fell 44.73 points, or 0.2%, to close at 20,028.93. -By Bijou George, Dow Jones Newswires; +91-22-6145-6111; bijou.george@dowjones.com

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