India’s central bank unexpectedly closed a $50bn dollar deposit scheme early, reducing rupee liquidity and pushing 5-year yields up 9 basis points.
The Reserve Bank of India advanced the closure of its special dollar deposit window for overseas residents to August 31, cutting expected rupee liquidity. The move triggered a bond selloff, with 5-year yields rising 9 basis points to 6.44% and 10-year yields climbing 4 basis points to 6.80%.
The facility had already attracted over $50bn, but the RBI’s decision suggests growing concerns over future liabilities and forward-premium costs. Analysts note the earlier closure may slow reserve accumulation, which recently surpassed $700bn, and limit further rupee appreciation.
Markets reacted swiftly to the liquidity reduction, with yields adjusting to reflect tighter monetary conditions ahead.