RBI buys bonds worth Rs 10k cr, to conduct 2 more OMOs of Rs 30k cr

The Reserve Bank of India (RBI) will buy bonds worth Rs 30,000 crore from the secondary market, after buying Rs 10,000-crore bonds on Friday, to infuse durable liquidity into the system so that the market continues to function normally amid a coronavirus-induced slowdown.

The central bank received bids worth Rs 45,049 crore for Friday’s open market operation (OMO), through which the RBI bought Rs 10,000 crore of bonds. The response showed that the market needed liquidity support from the RBI.

“The response to the open market purchase auction conducted on March 20 has been positive,” the RBI said in a statement.

“Meanwhile, with the COVID-19-related dislocations, stress in certain financial market segments is still severe and financial conditions remain tight. The RBI’s endeavour is to ensure that all markets segments function normally with adequate liquidity and turnover.”

The central bank said it will conduct two more OMOs, of Rs 15,000 crore each on March 24 and March 30, respectively, to pump in more liquidity. The bonds to be purchased in the first auction mature between December 2022 and January 2029.

The banking system is not running a liquidity deficit. There is, in fact, Rs 2.93 trillion of surplus liquidity in the system, shows the RBI data.

But bond yields have risen as foreign investors liquidated their holdings in search of safe haven. The bond market, in such cases, would need to depend on domestic investors who may want liquidity support to invest in bonds, say bond dealers.

Besides, RBI’s expressed liquidity operations also help boost the morale as the market gets a signal that the central bank is there to take care of any need, should there be any market disruption because of the coronavirus pandemic, they said.

Earlier this week, the RBI said it will infuse liquidity into the system through Rs 1 trillion of long-term repo operations (LTROs) and will also increase dollar liquidity through a sell-buy swap of dollars, starting with a $2-billion swap.

The first tranche of the LTRO, for Rs 25,000 crore, took place on Wednesday. The LTRO for a three-year tenure saw participants bidding for a total of Rs 27,096 crore. The RBI has already infused Rs 1 trillion of liquidity through LTROs in its first operation. 

The 10-year bond yield fell after the OMO announcement. The yields closed at 6.26 per cent, down from its previous close of 6.41 per cent. The rupee closed at 75.20 a dollar, down from its previous close of 74.99 a dollar.