OMO buys below target

The Reserve Bank of India (RBI) today accepted just Rs 1,661 crore worth of securities in open market operations (OMO), much less than the notified amount of Rs 7,500 crore. This is perhaps hinting at a trend of soft yields, according to dealers.

Market dealers put in bids for 6.05 per cent 2019 bond, which is illiquid paper. The cut-off yield for accepting bids was 6.91 per cent, less than the closing yield of 6.96 per cent in trading for the 10-year bond.

The RBI accepted bids for securities worth Rs 926.4 crore as against Rs 3,366.4 crore offered in OMO for 6.05 per cent 2019 paper.

“The central bank’s action is not so much aimed at liquidity but at sending signal on yields,” said a head of treasury with a public sector bond house. The RBI has been buying securities via OMO to ensure liquidity in the system ahead of the bond auctions through which the government raises resources.

The government is slated to raise Rs 15,000 crore through bonds with different maturities. It will also issue fresh 10-year paper, which is expected to become a new benchmark for yield in 2009-10.

Dealers said while the government had announced a higher borrowing programme for 2009-10 in the Budget, liquidity in the system was ample and hence finding resources should not be a concern for now.

The RBI purchased securities worth Rs 43,159 crore till June 26, 2009, in the current financial year. It has indicated that securities worth Rs 80,000 crore will be bought through OMO in April-September 2009, when government borrows in huge amounts, to ease any pressure on resources.

Its OMO purchases stood at Rs 1,04,480 crore in 2008-09, much higher than previous year’s Rs 13,510 crore.