The Reserve Bank of India (RBI) on Friday announced sale of government securities worth Rs 10,000 crore via open market operations (OMO).
The Reserve Bank of India (RBI) on Friday announced sale of government securities worth Rs 10,000 crore via open market operations (OMO). The OMO sale is being conducted on August 10, after the monetary policy. An OMO sale is conducted to suck excess liquidity from the system while an OMO purchase is done to infuse liquidity.The central bank is selling five different securities — 8.19% GS 2020, 8.08% GS 2022, 7.72%GS 2025, 8.15% GS 2026 and 7.88% GS 2030. This is the third OMO sale announced by the central bank this fiscal year. The first one was announced on June 30, followed by another on July 7. The OMO sale announcement is in line with what market participants have been expecting. Bond market experts earlier pointed out that since the central bank had commenced an OMO sale, it would likely to conduct at least Rs 40,000 crore sale of securities to make the liquidity reduction effective.
The reaction of the markets has also been noteworthy. The first time the central bank announced an OMO sale this fiscal year, bond yields had spiked. Ironically, the second time the RBI announced a sale on a Friday, bond markets did not react negatively at all when it opened on Monday. The announcement follows growing expectations of a rate cut in the August policy led by a low inflation number in June.