RBI Cash Infusions Drive India Rate Swaps to Lowest Since April

  • Expect central bank to keep providing liquidity: India Ratings
  • Rupee advances while 10-year sovereign bonds little changed

India’s one-year interest-rate swaps slipped to the lowest level since early April on optimism cash supply in the financial system is improving.

A benchmark overnight interbank rate has averaged 6.46 percent so far this month, 11 basis points lower than for all of May, data compiled by Bloomberg show. DSP BlackRock Investment Managers Pvt. predicts the Reserve Bank of India will infuse as much as 1.5 trillion rupees ($22.3 billion) through its open-market bond purchases in the year ending March 2017. The RBI has already bought bonds worth 800.1 billion rupees since April 1, including a purchase of 100 billion rupees on Monday.

“The central bank’s open-market operations have helped improve the liquidity scenario,” said Soumyajit Niyogi, Mumbai-based associate director at India Ratings & Research Pvt., a unit of Fitch Ratings. “We expect the RBI to continue to infuse cash to help tide over any major tightness that may emerge.”

The cost to lock in interest rates for a year dropped for a third day, falling four basis points to 6.62 percent in Mumbai, data compiled by Bloomberg show. That’s the lowest since April 5. The yield on the sovereign notes due January 2026 was steady at 7.48 percent, according to prices from the RBI’s trading system.

India’s rupee rose 0.3 percent to 67.25 a dollar, prices from local banks compiled by Bloomberg show, tracking gains in emerging-market currencies before Britons vote on whether to stay in or leave the European Union. The rupee has weakened 1.6 percent this year in Asia’s worst performance.

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