Home / Market / Stock-market-news /  RBI pumps in 36000 crore to ease cash crunch, bond yield falls 11 bps

Mumbai: The 10-year government bond yield eased by 11 basis points on Monday morning after the Reserve Bank of India said that it will infuse fresh liquidity through open market operations of 36,000 crore in October. Bond markets also cheered the decision by the government to cut the borrowing programme by 70,000 crore on Friday for the second half of the current fiscal year, signalling its confidence in keeping the fiscal deficit under control. The 10-year bond yield was hovering at 7.916%, from its previous close of 8.024%. Bond yields and prices move in opposite directions.

“After lower borrowing calendar in H2 ( 2.47 trillion vs 2.88 tn in H1), we have got another positive surprise from the RBI on OMO buybacks. We have noted previously that OMO buybacks rate will increase over time. That said, this announcement is even higher than that i.e., INR 360bn in Oct versus expectation of INR 200bn which was OMO buyback for September. This is very positive for bond markets", said Vivek Rajpal, a rates strategist at Nomura Holdings Inc.

In an aim to infuse liquidity in the banking system, the RBI on Monday announced injecting 36,000 crore in the banking system. The central bank will buy the bonds in October under its open-market operations, it said in a note.

“The RBI has decided to jump start liquidity infusion with bunched up OMO bond buybacks, close to the heels of two such tranches in Sept along with the LCR/SLR carve out limits. By taking a pre-emptive step, liquidity pressures are likely to ebb, easing rates across the board. There is also likely an anticipation that liquidity is likely to have slipped into deficit for a protracted period of time, thus necessitating the central bank’s hand to lift it back towards neutral," said Radhika Rao economist at DBS Bank

“Participants will seek the tenor breakdown of the OMOs but prima facie, the move is likely to boost confidence amongst debt market players, particularly at a time when credit spreads had come under pressure," Rao added.

On Friday, economic affairs secretary Subhash Chandra Garg said that gross borrowing will be at 2.47 trillion for the October-March period. Garg said the government does not anticipate any fiscal slippage in 2018-19.

Meanwhile, the rupee opened marginally lower against US dollar after crude oil hit $83 bbl. At 9.15am, the currency was trading at 72.63, down 0.2% from previous close.

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