Central bank will purchase securities maturing in 2025, 2029 and 2033, and sell short-dated securities maturing in November this year and February 2022
The Reserve Bank of India (RBI) Monday said it will simultaneously sell and purchase government securities (G-Secs) worth ₹10,000 crore under open market operations (OMOs) on 25 February. Typically, the central bank conducts OMO sales to drain out liquidity 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 up 2 basis points at 6.01% on Monday. One basis point is one-hundredth of a percentage point.
RBI has been making attempts to keep the yield on the 10-year benchmark bond below 6% to support the government’s borrowing programme. 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, RBI has undertaken OMO purchases of G-Secs of ₹4.07 trillion and OMO purchases of state development loans of ₹30,000 crore.
RBI had on Wednesday conducted an OMO that helped cool 10-year bond yields, which had touched 6.15% after the monetary policy announcement.
RBI, which had offered to purchase ₹20,000 crore of G-Secs, bought ₹14,654 crore in the 10-year segment alone on Wednesday. It completely left out a bond maturing in 2028 and bought bonds of ₹2,040 crore and ₹3,306 crore maturing in 2024 and 2034, respectively.
The market had offered bids of ₹89,234 crore for the ₹20,000 crore OMO.
“The supply 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. The market needs predictability by announcing an OMO calendar and also giving forward guidance," said Pankaj Pathak, fund manager, fixed income, Quantum Asset Management Co. Pvt. Ltd.