The Reserve Bank of India (RBI) needs to innovate open market operations (OMO) management as a better signalling device, SBI Research said in its latest Ecowrap report on Wednesday.
Even as the RBI has cut repo rate by 125 bps and has injected Rs 6.6 lakh crore in the current fiscal as part of OMOs, yields are yet to soften. This is unprecedented as this is the largest OMO in the history of monetary management, the report said. In effect, the transmission of monetary easing across financial markets remains uneven, it noted.
Asymmetrical Market Transmission
The report highlighted the asymmetrical transmission in lending and money market rates. Money market transmission declined initially, but have firmed up since August 2025, with a starker asymmetry being seen in state development loans, where April-December weighted average yields stood at 7.16%.
Targeting Liquid Papers
Soumya Kanti Ghosh, group chief economic adviser at SBI, proposes that the RBI does OMO in papers that are liquid to make a meaningful impact on yields.
“The RBI can do OMO in just the preceding 10-year paper, that is 6.33% 2035, or the immediate outgoing benchmark paper. This will ensure yield curve signalling in the most recent liquid paper that could revive the market sentiment across segments,” he said.
The RBI’s decision to prepay the full amount borrowed in repo for 90 days is something not seen in any other country. It may spark volatility, but the good thing is that the RBI is introducing innovations in liquidity management and it may even result in new bidding strategies, Ghosh said in the report.