To maintain liquidity, RBI to purchase Rs 10,000-crore govt bonds via OMO

The Reserve Bank of India (RBI) on Wednesday said it would buy Rs 10,000 crore of bonds from the secondary market to keep the market liquid, even as it infused Rs 25,000 crore of liquidity through long-term repo operations (LTRO).

“With the heightening of COVID-19 pandemic risks, certain financial market segments have been experiencing a tightening of financial conditions as reflected in the hardening of yields and widening of spreads. It is important to ensure that all market segments remain liquid and stable, and function normally,” the RBI said in a statement on its website. 

Therefore, the central bank will conduct open market operations (OMO) on March through a multi-security auction.

The bonds mature between February 2022 and May 2025.  This is one more effort by the central bank to infuse liquidity even as the system remains in liquidity surplus of about Rs 2.5 trillion. 

Earlier this week, the RBI said it would infuse liquidity in the system through Rs 1 trillion of long term repo operations (LTRO) 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 happened on Wednesday. The LTRO for a three-year tenure saw participants bidding for a total of Rs 27,096 crore. This is a far cry from bids in multiples that the RBI received in its first round of LTRO of Rs 1 trillion, and indicates that liquidity is quite comfortable in the system. 

The RBI has already infused Rs 1 trillion of liquidity through LTRO since February. The RBI also assured that it will use all that it has to fight a COVID-19-led slowdown, and address all kinds of liquidity concerns.