RBI to buy Rs 360 billion worth of bonds in October to ease liquidity

The Reserve Bank of India (RBI) on Monday said it would buy Rs 360 billion worth of bonds from the secondary market in October to meet the durable liquidity needs and the seasonal growth in currency in circulation observed in the build-up to the festive season. The auctions will be conducted during the second, third, and fourth weeks of October.

This advance intimation of open market operations (OMO), along with last week’s relaxation of the liquidity coverage ratio by 2 percentage points, infused the much-needed support for the bond market. The yields on the 10-year bond closed below 8 per cent (at 7.987 per cent) on Monday. 

Since mid-September, the RBI has conducted two OMO purchases, infusing Rs 200 billion, to ease liquidity pressure due to advance tax outflow and goods and services tax-related payments. Since the start of the financial year, five OMOs were done of Rs 100 billion each. The RBI had guided in its post-policy conferences that systemic liquidity would move into deficit in the second half of the fiscal year and that the evolving liquidity conditions would determine its choice of instruments, for both transient and durable liquidity management. It had assured the market on September 27 that it was ready to meet the liquidity requirements of the system.