India’s RBI Switches to Online Bond Platform

The Reserve Bank of India (RBI) has quietly switched to using an electronic bond trading platform to manage cash levels in the debt market, hoping a more discreet approach will have less impact on bond yields, according to a Reuters report that cites two officials familiar with the trades.

The news agency said that using an electronic trading platform that gives the RBI – India’s central bank – anonymity marks a departure from its usual open market operations and from the practices of other major central banks in Asia.

Reuters added that the RBI had previously used open market operations to add or drain liquidity, a relatively public system that allowed traders to position themselves to try to profit from the central bank’s transactions.

“The whole idea is liquidity management should not influence long-term yields,” one of the officials told Reuters.

“If you impound or provide liquidity through the negotiated dealing system – order matching [NDS-OM], it will help in avoiding an impact on yields, which used to be there with the announcement of open market operations.”

According to the news agency the RBI has sold a total 43.85bn rupees (INR), equivalent to US$730m of bonds in the three weeks starting 29 May through the NDS-OM, an electronic trading platform.

While the amount bought was relatively small, given that daily volumes on NDS-OM are around INR300bn, it marks the central bank’s most active use of the NDS-OM platform since June 2012. At that time, the RBI bought bonds to infuse liquidity during a period of acute tightness in cash.

However, the official told Reuters that the central bank will not be able to completely switch to NDS-OM for all of its cash management as the Indian debt market is not deep enough for large scale operations. Open market operations will still be an option but the RBI will avoid it as much as possible.

The use of NDS-OM was part of recommendations issued by a central bank panel in January on revamping India’s monetary policy framework after the appointment of governor Raghuram Rajan in September 2013.

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