India's government may buy more bonds in the market for more cash

India's government may buy more bonds in the market for more cash to ease the crisis in 10 years, according to companies required to offer debt auctions.

The yield on the security of 2020 has fallen 11 basis points from a 26-month high of 8.21 percent last week as the Reserve Bank of India bought back 101 billion rupees ($ 2, 2 billion) of securities. Policy makers can buy 300 billion rupees of notes for the rest of the year ended March 31, according to ICICI Securities Primary Dealership Ltd. and IDBI Gilts Ltd., including 120 billion rupees morning, more in this quarter.

"The banking system has no liquidity, so that the RBI may want to address that through bond repurchases," Manoj Swain, chief executive of Morgan Stanley India Pvt principal distributor. in Mumbai, said in a telephone interview yesterday, without specifying the amount of policy makers is purchased.

Governor Duvvuri Subbarao Dec 09, said it was "fully aware" of the cash shortage in the banking system, even though it remains above the central bank's inflation "tolerance." A government report today showed inflation cooled benchmark to 7.48 percent in November from 8.58 percent in October compared with 8.1 percent in Russia, 5.1 percent in China and 5, 6 percent in Brazil.

The central bank injected an average 820 billion rupees every day on the banks in this quarter, the most since 2000. The amount of the lenders provided is an indication of the shortage of funds in the financial system. The government raised 677.2 billion rupees from the auction of licenses for third generation in May and 385.4 billion rupees from the sale over the Internet allows a month later, draining cash from lenders.

Yields Up

The cost of money to set rates for three months rose 295 basis points, or 2.95 percentage points this year to 6.90 percent in the market for interest rate swaps. Overnight lending rates between banks in an average of 6.6 percent this month, double the rate a year ago.

The yield of 7.8 percent due May 2020 fell one basis point to 8.10 percent today. Has increased three basis points this month in tax-depleting cash concern in the system. These payments will total 500 million rupees this week, according to ICICI Securities Primary Dealer.

"The purchases of bonds may be a key tool for policy makers in sight, with the outputs of the business taxes imposed narrow to add liquidity," said Namrata Padhy, fixed income strategist at Mumbai-based leading distributor bristles IDBI Young, in an interview yesterday.

Bond Returns

three months of India Treasury yields have more than doubled to 7.15 percent this year as the Reserve Bank raised borrowing costs by 150 basis points, more than any other central bank in Asia. The comparable measure rose 14 basis points to 10.67 percent in Brazil and 12 basis points to 0.16 percent in the U.S. The rate of similar notes People's Bank of China rose 124 basis points to 3.05 percent.

The difference in yield between debt because of a decade and a similar U.S. Treasury India's maturity was 483 basis points yesterday, compared with 372 at the beginning of the year.

India's bonds have returned 4.1 percent this year, the fifth-worst performance among the 10 markets local currency debt followed by HSBC Holdings Plc. Investors in debt assets of Indonesia gained 22.4 percent, most of the region, according to the largest bank in Europe.

The rupee, which has appreciated 3.4 percent this year, strengthening 0.4 percent to 44.98 per dollar today.

Fiscal Deficit

The cost of protecting debt of state-owned Bank of India, some investors see as a proxy for the nation, has fallen 77 basis points from a peak of 239 this year on optimism the nation reach its goal fiscal deficit, according to data provider CMA. Swaps credit-default pay the buyer face value in exchange for the underlying securities or the cash equivalent that the bank does not adhere to its debt agreements. A basis point equals $ 1,000 annually on a contract protecting $ 10 million of debt.

The government plans to reduce fiscal deficit to 5.5 percent of gross domestic product in the current year from 6.9 percent last year, the highest court in three years, helped by sales of shares in state enterprises. The Indian Prime Minister Manmohan Singh, is trying to raise 400 million rupees from the sale of such assets in the year to March to help finance the construction of roads, ports and hospitals.

"The central bank will make repurchases and try to infuse some money," said Ananthasubramaniam Prasanna, chief economist at Mumbai-based ICICI Securities Primary Dealer in an interview yesterday.