India Bond Impact (Fixed Income Report) : Another last minute auction

RBI is bringing another $2.4 bln or INR 12,000 crore auction this week on Dec 30 because of a missed date on Nov 9. Liquidity operations thus have totalled INR 480 bln or $ 9 bln+ and a CRR cut of 0.5% would have released INR 20,000 crores or INR 200 bln even if neglecting 1 in 5 funds quantum as sticky to SLR cushions and CRR cushions bank prefer instead of credit. If further liquidity is indeed required, ban economist desks already expect that to come via the CRR route.

Government has accounted for liquidity thru buying back the 5, 15 and 20 yr term securitiesand rates have remained higher after the dip to 8.4% over the lower growth. According to Shubhda from Yes, the 13% leakage in cash and the Inr 90 bln in Sept and Oct FX intervention would have caused some of the current liquidity squeeze. 

Funnily enough the expected fiscaldeficit creep and rupee falling to 55/58 could see government borrowing going up apart from the INR 500 bln yet with auctions in Jan Feb as well as March. A raw estimate of the creep on Fisc, gives INR 500 bln in Food and Fertiliser subsidies or 0.8% and INR 750 bln in other including INR 450 bln from fuel subsidies already found and agreed. leading to a creep of upto 2%. The hole will be plugged by a PSE cross holdings and using of PSE cash of 0.75% of GDP ( based on GDP = INR 55 tln = $ 1.1 tln )