Although there is no concrete proof, experts believe a large chunk of this is likely to be T-Bill purchases by the RBI from the secondary market.
The Reserve Bank of India (RBI) has been continuing its secondary market purchase of government securities, which market participants indicate is likely to be treasury bills, via open market operation (OMO) purchases in the third week of April after similar purchases were noted during the second week.
The central bank conducted OMO purchases worth Rs 16,424 crore between April 13 and April 17, according to the weekly statistical supplement extract put out by the central bank on Friday. Although there is no concrete proof, experts believe a large chunk of this is likely to be T-Bill purchases by the RBI from the secondary market.
According to the WSS data, the central bank has conducted Rs 14,989 crore worth of OMO purchases on April 17. In the week prior to this, the central bank conducted OMO purchases of Rs 14,660 crore between April 7 and April 9. Experts had indicated that this was also likely to be T-Bill purchases from the central bank.
Reports had also indicated that the central bank is buying G-secs via primary dealers from the government securities auction. However, this could not be confirmed and many market participants later said nothing pertaining to such purchases could be ascertained.
MS Gopikrishnan, an independent market expert, believes the RBI is buying T-Bills from the secondary market through which it is indirectly funding the government deficit. “In current conditions, the excessive liquidity in the system and duration risk-aversion of banks has created the ideal situation for increasing T-Bill borrowing and that could be one of the reasons why the government is borrowing more via T-Bills. These additional borrowing via short-term securities will have to be wound down eventually, but right now the government has time on its side as liquidity continues to be high,” Gopikrishnan said.
Along with the purchase of securities from the secondary market, the RBI is also conducting its twist operation where it is simultaneously buying long-dated securities and selling short-tenor papers worth Rs 10,000 crore each. Market participants had bid aggressively during the RBI’s twist operation on Monday during which they showed significant desperation to sell bonds during the OMO purchase taking the cut-off yield higher on one of the securities that was designated for the operation. Experts say the rise in yields could be attributed to market participants’ eagerness to book profits in these bonds.