RBI unlikely to issue MSS bond in near term

RBI unlikely to issue MSS bond in near term

New Delhi: The Reserve Bank of India (RBI) may not issue market stabilization scheme (MSS) bonds in the near term as there is no excess liquidity in the market, a senior finance ministry official said on Wednesday.

“There is sufficient liquidity in the market. But we can’t say that there is excessive liquidity," the official, who declined to be named, told Reuters.

A strengthening rupee on foreign inflows has fuelled market speculation that the central bank may start issuing the market intervention bonds.

The central bank can issue intervention bonds of upto Rs50,000 crore ($11.3 billion) in the 2010-11 fiscal year.

Earlier on Wednesday, the RBI governor Duvvuri Subbarao said issuance of intervention bonds would be more difficult in the current fiscal year given the low market appetite.

The rupee, which has gained about 4.7% in 2010, rose to a 19-month peak this month on foreign fund inflows into the equity market. Foreign investors have bought shares of about $5.7 billion so far in 2010.

A Reuters poll conducted last week showed the local currency is expected to appreciate about 1.2% against the dollar between now and end-December.

The official said the finance ministry and the RBI are yet to decide on the timing and the maturity date of the new 10-year benchmark bond.

Early this month, sources had told Reuters that the issuance of a new 10-year benchmark bond could be delayed as the government and the RBI want to increase volumes in the existing benchmark paper and avoid volatility.

Traders in the bond market were expecting the government to sell a new 10-year bond in the first week of this month, but the bond on offer, instead, was the current benchmark -- the 6.35% 2020 maturity bond.

Traders had been concerned the central bank may issue a fresh 10-year bond, which would have pushed them to sell the 6.35% 2020 bond in order to make room for the new issue.

The official also said the government has no plans currently to issue cash management bills (CMBs). The government uses CMBs to meet temporary mismatches in its finances.