RBI advances second tranche of open market operation purchases worth Rs 15,000 crore

Despite the Reserve Bank of India (RBI) advancing the second tranche of its open market operation (OMO) purchases worth Rs 15,000 crore to Thursday this week, the benchmark yield ended 12 basis points higher to close the session at 6.38%. The central bank notified its intent to purchase securities maturing between 2022 and 2028 in the auction for the second tranche of OMO.

An OMO purchase is an operation where RBI purchases bonds from the market and infuses rupee liquidity. Under the current circumstances, such an operation helps absorb the additional supply hitting the market due to the FPI selling in bonds, thereby easing the pressure on the yields.

Earlier, the RBI had announced it will conduct OMO purchases worth Rs 30,000 crore in two tranches of which the second tranche was initially scheduled for Monday next week. A bond market expert told FE that the negative reaction in the yields could be attributed to the fact that the market is expecting more from the central bank in current times.

“The market was expecting further OMO purchases to be conducted while we only saw an advancement of the already announced OMO. Also, the central bank has not announced any rate cut so far while other central banks around the world have been conducting monetary actions. That is the reason which could have disappointed the market. One also has to consider that a lot of traders are working from home and volumes in the market are low,” said the expert.

RBI has already conducted an OMO purchase worth Rs 10,000 crore recently for which it received bids worth Rs 45,049 crore. On Monday, the RBI also announced 16-day variable term repos worth Rs 1 lakh crore of which Rs 50,000 crore worth of repo auction was conducted on Monday itself while the rest would be conducted on Tuesday.

During Monday’s auction, RBI received bids worth Rs 31,585 crore against a notified amount of Rs 50,000 crore.

The announcement came in during the day. The auction may not have seen active participation by standalone primary dealers as one needed to have free collateral to be submitted to the RBI to avail the repo. Some of them could have already pledged their available collateral in the repo market or the TREPS market. Banks, of course, could have gone for the same,” said a dealer not wanting to be named.

RBI also announced the results of its US Dollar sell/buy swaps on Monday where it received bids worth $1.53 billion against a notified amount of $2 billion. The central bank accepted only $0.65 billion of the total bids received, a statement said.