This is big macro month. On Tuesday, the RBI, in a 2 month policy note, did nothing. It didn’t just do nothing, it was expected to do nothing. The fact that it didn’t do anything didn’t change the fact that the Rupee had fallen to near term lows – and FIIs were exiting. They just continued to sell in the cash market, while paring positions in derivative shorts. The RBI apparently is selling dollars – because it’s just announced an “OMO” (an Open Market Operation) to buy 10,000 cr. worth government bonds. While people report this is to help liquidity, it is not. There is no problem with liquidity at all. Banks are stuffed with cash – they borrow for 14 day terms from the RBI and conveniently park half of that back with the RBI overnight. The “OMO” is primarily to fix RBI’s balance sheet. When RBI sells dollars, it takes out rupees from the system (it pays dollars and takes in rupees).… (Read On…)
[via Capital Mind » Capital Mind]
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