The Reserve Bank of India (RBI) has done an outright open market operation (OMO) sales of government securities worth Rs 4,175 crore between October 16 and October 20, data shows.
This was despite the liquidity in the banking system being in deficit mode in that week, except on October 17, when liquidity was in marginal surplus.
OMO refers to the purchase or sale of government securities in the open market by the central bank. Such open market sales lead to a fall in bond prices, thereby pushing up yields. Bond prices and yields move in opposite directions.
According to the RBI’s Weekly Statistical Supplement data, RBI sold government securities through OMO worth Rs 920 crore on October 16, Rs 1,050 crore on October 17, and Rs 1,425 crore on October 18.
Further, it sold Rs 230 crore on October 19, and Rs 550 crore on October 20.
During October 16-20, liquidity in the banking system remained mostly in deficit mode, except on October 17, when liquidity was in surplus of around Rs 1,512.59 crore.
On October 6, during the monetary policy review meeting, RBI Governor Shaktikanta Das had said that the central bank may have to consider OMO sales to manage liquidity, which is consistent with the stance of the central bank.
His comments came when the liquidity in the banking system was already in deficit and no immediate inflows were expected.
Moneycontrol on October 17 reported that the central bank is likely to announce the sale of government securities via OMO in November, as banking system liquidity is likely to ease on account of inflows related to month-end government spending and bond redemptions, money market experts said.
Per market experts, the tight liquidity in the banking system is expected to ease by the end of October due to the government’s month-end spending on account of salaries and pensions, to the tune of around Rs 1 lakh crore, coupled with the boost from bond redemptions in November.
According to RBI data, bonds worth Rs 53,925.286 crore are due to mature on November 2, while bonds worth Rs 56,572.719 crore and Rs 32,500 crore are set to mature on November 25 and 29, respectively.
Currently, the liquidity in the banking system is in deficit at around Rs 94,365.23 crore.
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