RBI cancels open market bond sale in surprise move
Mumbai: The Reserve Bank of India on Friday said it had scrapped its plan to sell government securities worth Rs10,000 crore through open market operations.
“In view of the recent market developments and based on a fresh review of the current and evolving liquidity conditions, it has been decided to withdraw the open market sale operations scheduled for November 23, 2017,” the central bank said in a statement.
The development comes after credit rating company Moody’s Investors Service on Friday upgraded India’s sovereign rating by a notch in an endorsement of the Narendra Modi government’s reforms policy.
Moody’s raised the rating from the lowest investment grade of Baa3 to Baa2 and changed the outlook from stable to positive. This is the first upgrade of India’s rating in 14 years.
So far this fiscal, RBI has sold bonds worth Rs90,000 crore through OMOs in a bid to absorb excess liquidity from the banking system.
In the past few sessions, OMO sales by RBI, worries over a possible fiscal slippage by the government, and increase in crude oil prices led to a rise in bond yields. Bond yields and bonds prices move in opposite directions.
“We believe the reversal in RBI’s stance is positive for bond yields and one should see bond yields now heading lower from the current elevated levels. Even as this takes out the near-term worry on yields, pick-up in credit growth will put some upward pressure on bond yields in the medium-term,” Bank of Baroda said in a note on Friday.
Following the Moody’s upgrade, the yield on the 10-year benchmark bond fell 13 basis points on Friday. However, it later erased all the gains and ended nearly flat at 7.049%.
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