Reuters
The Reserve Bank of India (RBI) said yesterday it will gradually lower the ceiling on bonds that can be held-to-maturity (HTM) starting in January, while further easing currency hedging rules for importers in moves to boost trading in markets.
The RBI also announced it would extend the period that foreign investors can settle their over-the-counter government bonds to two days of their trade from one, a measure that traders speculated could be aimed to facilitate the settlement of debt in the Euroclear platform.
India is considering joining Euroclear, the world’s largest securities settlement system.
The slew of measures contained in a monetary policy review yesterday, demonstrated the RBI’s focus on developing markets under Governor Raghuram Rajan.
“The impact of reduction in HTM assets is marginally negative for bonds. There are lots of small things announced, but they are important for the market in the medium term,” said Kumar Rachapudi, senior rates strategist with ANZ in Singapore.
The central bank said it would cut the ceiling on bonds that can be held-to-maturity from the current 24% to 22% in stages, starting in the two-week cycle from January 10, 2015. It expects to complete the process by September 2015.
The action could prompt banks to trade debt more actively as it will reduce the incentive of parking securities until maturity and force lenders to mark more securities to market on a daily basis, leading to potential gains or losses.
