Rupee liquidity: RBI to buyback G-secs worth Rs 12,000 cr

Moneycontrol Bureau

In a bid to ease the tightening liquidity situation the Reserve Bank of India will conduct open market operations (OMO) by buying back government bonds aggregating Rs 12,000 crore on Friday (May 25).  The rupee's free falling against the US dollar has led to a crisis in rupee liquidity in the economy.
"Consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank has decided to conduct Open Market Operations on May 25, 2012 through multi-security auction using the multiple price method," RBI said in a statement on Tuesday.
Banks' borrowing from RBI's daily liquidity window (LAF) has been hovering around Rs 1 lakh crore for the last couple of weeks. This is way above from the RBI's liquidity comfort zone, 1% of net demand and time liability (NDTL) that amounts to Rs 60,000 crore.
"To stem rupee's sharp fall against the dollar, RBI is selling dollar to support rupee," Arvind Konar, head of fixed income, Almondz Securities told Moneycontrol.com.
"This has put strain on the liquidity condition. By conducting OMO purchases, the regulator will inject additional Rs 12,000 crore into the system. Despite a 50 bps cut in policy rates, the current borrowing level is much above the RBI’s comfort zone," he said
The result of the proposed OMO auction will be announced on the same day and payment to successful bidders will be made during banking hours on May 28, 2012(Monday). So far in FY13, this is the fourth consecutive OMO (purchase), announced by RBI.
"RBI conducts OMOs either to soften bond yields or pump in more liquidity. This time, it is aimed at curbing rupee depreciation by giving rupee liquidity support," said A D M Chavali, executive director, Indian Overseas Bank. The securities which will be auctioned include the following:

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