Rbi Schedules Rs 4000 Crore Omo Auction For Today

The Reserve Bank of India (RBI) has scheduled open market operation (OMO) sales of the 7.37 per cent 2014 paper and the 8.35 per cent 2022 paper for tomorrow.

The central bank will be sucking out Rs 4,000 crore from the liquidity flush banking system via the OMO.

Both the issues are expected to sail through as the banks are rolling in liquidity (as indicated by the daily average repo bids of around Rs 17,000 crore) and also due to the fact that the next auction as per the RBI calendar is slated only towards this month-end.

The RBI had, in April 2002, converted ad-hoc Treasury Bills into the 7.37 per cent 2014 paper. This paper, through which the RBI will absorb Rs 2,000 crore from the market, is expected to receive good bids as it has a low coupon.

 

There is one high coupon paper - the 11.83 per cent paper - available in the market that matures in 2014. But it is not actively traded due to a high premium of 32 rupees.

Market players pointed out that at the OMO auction held about a fortnight back, when the sentiment in the government securities started improving, the sale of the 8.07 per cent 2017 (medium-tenor) paper received good response.

The RBI placed this paper with the market at Rs 103.02 and its current price is Rs 105.10. The long-end 8.35 per cent 2022 paper is also expected to have a smooth sailing at the auction as the market is expecting a bank rate cut soon. A cut in the benchmark rate will result in the yield on papers at the long-end of the maturity spectrum to fall sharply.

Meanwhile, prices of government securities ended down 15 to 20 paise after the auction announcement.