Open Market Operations Suck Out Rs 1200 Cr

The Reserve Bank of India (RBI) has intensified its open market operations (OMO) and siphoned off liquidity to the tune of Rs 1200 crore from the market in the last three trading days.

According to the daily SGL figures, the most favoured government security has been the 13.05 per cent 2007 scrip, which recorded a turnover of Rs 700 crore in the two days of October 31 and November 1. The scrip was put on the sale list by the RBI on October 28. The 11.19 per cent 2005 security registered a turnover of Rs 290 crore between October 30 and November 1. It was put on the list on October 24.

The trading volume in new securities put out by the RBI as part of its open market operations in the last three days was around Rs 400 crore on October 29, Rs 500 crore on October 31 and Rs 200 crore on November 1. Thus, in a matter of three trading days, the central bank has mopped up about Rs 1200 crore worth of liquidity from the banking system. According to market players, the aggressiveness of the open market operations was to be expected, since the RBI has nearly finished the borrowing programme for the government. As much as 96 per cent of the borrowing programme has already been completed in the first seven months of the fiscal year. One more auction of dated securities is expected in the last quarter of the year. So long as the central governments borrowing programme was on, it was also used for liquidity adjustment, said market sources.

In the meantime, the RBI has little choice but to use OMO to suck out the liquidity. And to make it effective, the central bank has put out securities with higher coupon rates and those which are currently in demand. To that purpose, it has put out the 13.05 2007 and 11.19 per cent 2005 securities.

Market players expect further intensification of the OMO by the central bank in the coming days, unless it sees indicators of liquidity receding. It has on its books Rs 20,000 crore of securities converted from ad hoc treasury bills, which it could use for this purpose, said an RBI source.