The Reserve Bank of India (RBI) will simultaneously sell and purchase government securities under open market operations (OMOs) on 25 February it said on Monday. Typically, the central bank conducts OMO sales to drain liquidity in the financial system and OMO purchases to infuse liquidity. RBI will purchase securities maturing in 2025, 2029 and 2033, and sell short-dated securities maturing in November this year and February 2022.
The yield on 10-year G-Sec was trading 2 basis points at 6.01 per cent on Monday.
RBI has been making attempts to keep the yield on the 10-year benchmark bond below 6 per cent to support the government’s borrowing program. The central bank has been conducting OMOs and has also been directly intervening in the secondary market to smoothen the yield curve. So far this fiscal, the RBI has undertaken OMO purchases of G-Secs of Rs 4.07 trillion and OMO purchases of state development loans of Rs 30,000 crore.RBI had on Wednesday conducted an OMO that helped cool 10-year bond yields, which had touched 6.15 per cent after the monetary policy announcement. RBI, which had offered to purchase Rs 20,000 crore of G-Secs, bought Rs 14,654 crore in the 10-year segment alone on Wednesday. It completely left out a bond maturing in 2028 and bought bonds of Rs 2,040 crore and Rs 3,306 crore maturing in 2024 and 2034, respectively. The market had offered bids of Rs 89,234 crore for the Rs 20,000 crore OMO.
“The supplied size of OMO on government bonds needs to be high. The market does not have this kind of demand appetite. The market wants RBI to fill the gap. Last year RBI managed it pretty well. As things are turning out, inflation is showing some sequential increase. RBI is trying to normalize liquidity. The actions are irregular.