RBI purchases bonds via OMO, while managing market sentiments

The Reserve Bank of India (RBI) began its first leg of liquidity infusion with an open market operation (OMO) purchase of Rs 20,000 crore, involving a mix of both liquid and illiquid bonds from financial institutions while managing market sentiments, bond dealers said. The RBI received bids worth Rs 1,20,626 crore and accepted Rs 20,020 crore.

The RBI purchased Rs 5,000 crore from the 6.79 2034 paper at 6.67%, Rs 6,520 crore from the 7.18 2037 paper at 6.85%, Rs 4,125 crore from the 7.10 2034 paper at 6.74% and Rs 4,375 crore from the 7.18 2033 paper at 6.77%

Market participants said that out of all the papers, one paper – the 10-year 6.79 2024 paper – was accepted at a premium to the market price, hence making it more expensive for the RBI. The other papers were accepted at a discount to the market price. Yields on the 10-year benchmark government security closed at 6.68% on Thursday.

“By doing a mix of liquid paper at a premium to the market and illiquid papers at a discount to the market, RBI was able to manage market sentiments. The RBI accepted some amount in the 10-year paper at a price higher than the secondary market at the time. This created a balance in the market sentiment,” said Vijay Sharma, senior executive vice president at PNB Gilts.

The RBI will conduct its second measure to infuse liquidity on Friday, by conducting a dollar-rupee buy/sell swap of $5 billion for a tenure of six months. Another Rs 20,000 crore OMO purchase auction will be held on February 13

System liquidity has continuously been in deficit since mid-December 2024 and the daily average deficit for January stood at Rs 2.03 lakh crore.