MUMBAI Aug 12 The Indian central bank's
announcement of around 250 billion rupees ($4.09 billion) worth
of injections via term repos were intended to ease concerns
about a cash crunch, but instead added to uncertainty and
volatility in the money markets, traders said.
The Reserve Bank of India announced two separate overnight
variable rate repos on Monday, worth about 50 billion rupees
each, and followed up on Tuesday by announcing a 7-day term repo
auction that could inject up to 150 billion rupees.
Although the overnight cash rate closed at
8.00/8.05 percent, in line with the repo rate, it fluctuated in
a wide 8.00 percent to 8.80 percent range through the session.
Traders said such rapid-fire announcements of these term
repos, or cash-for-loans transactions, far from easing market
sentiment, created confusion about the central bank's rationale.
"Why do overnight repos when they could have simply
announced a larger amount for a slightly longer term?" asked a
senior trader, questioning the need for two separate overnight
repos preceding the auction of a 7-day term repo.
The RBI did not have immediate comment.
The announcements come after RBI Governor Raghuram Rajan
said last week the central bank would consider issuing more
frequent and shorter-dated repos, or cash-for-loans transactions
to smoothen volatility in money markets.
The RBI began 7- and 14-day term repos in October, but
traders complained they were announced too sporadically, making
it hard for banks to manage their near-term cash needs.
Still, some analysts noted that despite the confusion on
Tuesday, the injection of funds by the RBI would prove a
positive for markets.
"I believe the market is unnecessarily worrying when enough
liquidity is there in the system through term repo and overnight
repos," said N.S. Venkatesh, treasurer at IDBI Bank in Mumbai
(1 US dollar = 61.0800 Indian rupee)
(Editing by Rafael Nam and Prateek Chatterjee)