WSJ: India Bonds Gain As Liquidity Improves; Rupee Down
MUMBAI (Dow Jones)--India government bonds ended higher Wednesday, supported by banks' improving cash situation thanks to the central bank's liquidity easing measures.
The most-traded 8.08% 2022 bond ended at INR99.82, up from INR99.68 at Tuesday's close, while the benchmark 7.80% 2020 bond rose to INR98.30 from INR98.22.
Bonds made up for most of the losses incurred Tuesday on some buying activity as traders had kept positions light in anticipation of an INR110 billion debt sale later in the week.
The Reserve Bank of India, after trading hours Wednesday, said it bought back three bonds worth a total INR100.01 billion to help banks tide over a persistent cash deficit. The RBI had offered to repurchase up to INR120 billion of four bonds.
But sentiment remained cautious, with INR56.50 billion worth of bonds traded, as the RBI's next policy meeting approaches. The central bank is widely expected to tighten monetary policy at its meeting on Jan. 25 to counter price pressures.
C. Rangarajan, chairman of the prime minister's Economic Advisory Council, said the RBI may have to act if inflation doesn't ease this month as persistently high prices of primary articles could spill over into other sectors.
In the currency market, the Indian rupee fell to an over two week-low against the U.S. dollar, tracking losses in local stocks. Traders said the rupee was pressured by dollar buying from custodial banks.
The dollar was at INR45.33 late Wednesday, compared with INR44.99 late Tuesday.
The Bombay Stock Exchange's Sensex fell 1% to close at 20,301.10.
However, the rupee may be poised for some gains in the current quarter with foreign inflows directed at the upcoming follow-on share sales of Steel Authority of India Ltd. and Oil & Natural Gas Corp.
"With more stake sales in the pipeline, like Hindustan Copper Ltd., Rashtriya Ispat Nigam Ltd. and MMTC Ltd., the ensuing foreign institutional investors inflows would be supportive for the rupee," ICICI Bank said in a research note.
