The Reserve Bank of India resumed the purchase of government bonds after a six-month gap, as it infused liquidity into the banking system via the secondary market, says a Reuters report.
The RBI net bought bonds worth Rs 12,470 crore ($1.41 billion) in the week ending November 7, and was on the bidding side for three of the four sessions for which data was published, Reuters reports, quoting RBI data.
The settlement of such screen-based purchases occurs a day after the trade. Market participants had speculated on the RBI’s presence after data showed an investment category that includes the central bank buying a net 205 billion rupees of bonds last week.
Concerns over demand were also pushing up bond yields, prompting the RBI to cancel the auction of a seven-year paper on October 31. The 10-year benchmark yield fell 2 basis points to 6.51%.
Experts say buying to continue
“The purchases are on expected lines, as the earlier elevated figures in the ‘others’ category were driven by a single underlying factor,” said VRC Reddy, treasury head at Karur Vysya Bank.
“Such buying is likely to continue, followed by possible Open Market Operation (OMO) auctions from December or January.”
The RBI typically sells or buys bonds to adjust banking liquidity and rates to align them with its monetary policy. However, these operations also impact yields.
RBI’s January bond purchase
In January, the central bank had bought bonds worth over Rs 388 billion through screen-based operations before embarking on an aggressive cycle of open market purchases.
They had net bought bonds worth Rs 4.84 trillion from the end of January to mid-May via OMO auctions.
Some traders also speculate that the purchases would be for replacement demand, as the RBI had a hefty stock of 5.15% 2025 bond that matured on November 7.
“That is why the numbers have started dropping from the second half of this week as the replacement demand would have been completed,” a senior treasury official said.
The Rupee closed at 88.7425 per US dollar, down about 0.1% on both the day and week.