(Bloomberg) -- India's central bank sold 34 billion rupees ($406 million) of bonds in the secondary market in the week ended July 14, as it likely stepped in to mop up excess cash in the banking system triggered by flows into the nation's debt after they were included into a global index.
The bond sales by the Reserve Bank of India were spread over four days, the monetary authority's weekly statistical supplement showed.
Foreign inflows into local bonds have topped $1 billion so far in July after the nation's bonds got added into JPMorgan Chase & Co.'s flagship emerging market bond index late last month. That has added to local rupee liquidity as the central bank mopped up the inflows to add to reserves. The RBI added $9.7 billion to its reserves pile that week, the data showed.
India's banking system liquidity has turned surplus after being in deficit for most of the year amid government spending post elections and the central bank's intervention. The excess liquidity banks park with the central bank stood at 1.4 trillion rupees, a Bloomberg Economics index showed.
“Once liquidity in the banking system moves beyond 500 billion rupees surplus or deficit, the RBI tends to intervene,” said Alok Singh, head of treasury at CSB Bank. “The last couple of weeks has seen a surplus bigger than that, which could be bothersome for the central bank if it stays like that.”
Traders are awaiting the federal budget on Tuesday to gauge the government's borrowing plan for the fiscal year. The government is scheduled to borrow 14.1 trillion rupees via bonds in the financial year that began April 1.
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