RBI to conduct ₹20k cr OMO tomorrow

MUMBAI: The Reserve Bank of India (RBI) on Monday announced that it will purchase government securities worth ₹20,000 crore through open market operations (OMOS) in a bid to cap yields of treasury bonds and support an expanded government borrowing programme.

“The Reserve Bank stands committed to ensuring the availability of ample liquidity in the system in order to foster congenial financial conditions,” an RBI notification said on Monday. “On a review of current liquidity and financial conditions, therefore, the Reserve Bank has decided to conduct purchase of government securities under open market operations (OMO) for an aggregate amount of ₹20,000 crore on February 10, 2021.”

The central bank will purchase long-term security maturing in 2024, 2028, 2030 and 2034, the notification said.

The bond market had been waiting for the OMO announcement ever since the government announced in the budget its intent to raise ₹12 lakh crore for the next financial year and an additional ₹80,000 crore for this year. RBI in its monetary policy on Friday, however, did not give any explicit guidance on the same, which disappointed the market. The yield on the 10-year bond on Friday had jumped to 6.17%, the highest in more than five months. However, it cooled off after the OMO announcement with the benchmark 10-year yield closing 3bps lower at 6.04%.

Also on Monday, Bloomberg reported that RBI is expected to buy more than ₹3 lakh crore ($41 billion) of sovereign bonds in the next fiscal year to support the government’s borrowing plans, citing a person with knowledge of the matter. This will exceed the ₹3 lakh crore the RBI is expected to spend for the current year ending March, the Bloomberg report added.