RBI to Meet Banks and Primary Dealers Amid Tightening Liquidity Concerns

The Reserve Bank of India (RBI) is set to hold a meeting with select primary dealers and banks on Tuesday to discuss current market conditions as tightening liquidity pressures the government bond market, traders told Reuters. The meeting reportedly carries no formal agenda but comes shortly after the central bank canceled an auction of ₹110 billion ($1.25 billion) worth of seven-year government securities, a move that led to a seven-basis-point drop in benchmark bond yields.

Market participants suggest the RBI may be concerned about the recent rise in yields and shifting liquidity dynamics. “Things have changed sharply within a few days, and what was expected to be a continued bull-run turned out to be short-lived,” one trader said. Another source noted that the RBI “feels yields should be lower than current levels” and has already taken steps such as adjusting the supply calendar and persuading state governments to borrow less.

India’s banking system liquidity has swung between surplus and deficit in recent weeks, partly due to the central bank’s foreign exchange interventions. RBI Governor Sanjay Malhotra recently indicated that there is room for bond yields to decline, hinting at further measures in the management of central and state government securities to stabilize market sentiment.

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