Additionally, the central bank also purchased ₹40,000 crore worth of government securities via open market operations (OMO) auction.
“The VRR auction did not see much demand because the money market rates have fallen below 6 per cent, and it does not make sense to pay 6.01 per cent, when overnight rates are trading at 5.80 per cent,” said a dealer at a primary dealership.
The net liquidity in the banking system was in a surplus of ₹1.69 trillion as of Wednesday, latest RBI data showed.
The RBI has infused ₹3.3 trillion via OMO auctions and ₹2.2 trillion via long term VRR auctions so far.
“The OMO auction cut-off was set higher than the market price because the market has the view that after the RBI dividend comes in, there will not be any more OMO auctions, so they are booking profit now for the first quarter,” said a dealer at another primary dealership.
Meanwhile, the yield on the benchmark 10-year government bond fell to its lowest since December 15, 2021, as traders stocked up on bonds anticipating that the benchmark yield might fall to 6.25 per cent by the end of the current quarter, said dealers.
“There is the view that the yield (on the benchmark bond) will fall to 6.25 per cent, which is leading to the demand,” said a dealer at a state-owned bank. “Private banks are the major buyers,” he added,
RBI’s monetary policy committee (MPC) had cut the repo rate by 25 basis points (bps), and changed the stance to accommodative from neutral.
Additionally, RBI Governor Sanjay Malhotra mentioned in the post-policy conference that the central bank would ensure surplus liquidity and that an accommodative stance implies either a status quo or a rate cut, prompting traders to anticipate a deeper rate cut by the rate-setting panel.
“We are seeing two more cuts, and the supply-demand mismatch is leading to strong demand in gilts,” said a dealer at a primary dealership. “The supply will increase in the second half (H2), so people want to book profit when they can,” he added.
 "RBI, Reserve Bank of India")