RBI to conduct extra Rs 40K cr OMO purchase to infuse durable liquidity

The Reserve Bank of India (RBI) announced on Friday that it will conduct an open market operation (OMO) auction on April 17 to purchase government securities worth Rs 40,000 crore. This auction comes in addition to the previously announced Rs 80,000 crore OMO programme, which is being conducted in four tranches of Rs 20,000 crore each on April 3, April 8, April 22, and April 29.

 

Additionally, the central bank will also conduct a long-term 43-day variable rate repo auction on the same day to infuse Rs 1.5 trillion into the banking system.

 

The RBI has infused Rs 2.9 trillion via OMO auctions so far. It has also infused Rs 2 trillion via long-term variable rate repo (VRR) auctions.

 

“As they had promised that they will provide surplus liquidity, they are sticking to it to ensure transmission of rate cuts,” said the treasury head at a private bank.

 

The net liquidity in the banking system was in a surplus of Rs 1.8 trillion on Thursday, according to the latest data by the RBI.

 

“This will be a positive for the bond market. Given the US yields are so volatile, they have to make sure that there is enough liquidity so that domestic yields remain comfortable. By June-end, we see yields moving toward 6.25 per cent,” said a dealer at a state-owned bank, referring to the yield on the benchmark 10-year government bond.

 

The benchmark yield is trading at a three-year low. It slumped post the monetary policy committee decision on Thursday. It settled at 6.44 per cent, flat against Thursday.