RBI likely to buy back up to Rs 50,000 cr of G-Secs through OMO

The Reserve Bank of India is likely to announce a calendar for the buyback of Government securities of up to Rs 50,000 crore through Open Market Operations (OMO) in the mid-quarter review of the monetary policy on Friday.

The central bank, however, may not cut the cash reserve ratio as inflation is still ruling high. Market players expect it to pause on Friday and possibly indicate that it will ease interest rates in the January quarter review.

The buyback calendar will be for the rest of the financial year, said bond market participants.

A buyback of G-Secs will ease the pressure on bond yields and liquidity. So far, the RBI has been announcing OMOs on a weekly basis. Over the last month or so, the RBI has bought back about Rs 30,000 crore worth of bonds.

But given the liquidity constraints in the system, bond market participants feel that this time around, the central bank may announce a calendar for buybacks and fix the quantum.

Earlier, the expectation was that the RBI may cut the Cash Reserve Ratio to address liquidity issues. But with inflation still ruling above the central bank's comfort level, it is now widely expected that the RBI may leave the CRR untouched.

Mr Puneet Pal, Fund Manager, UTI AMC said, the RBI may fix the quantum for the OMO at about Rs 40-50,000 crore.

“If RBI does not cut the CRR, it may announce the OMO quantum. While this amount will not make liquidity abundant, it could at least ease the pressure. The liquidity deficit will still be in the range of around Rs 50,000 crore,'' he said.

In addition to high inflation, the Government's second supplementary borrowing of almost Rs 57,000 crore is bound to put pressure on the bond market. Especially since the Government's revenues don't look too healthy right now. This is perhaps another reason why the RBI may announce the OMO calendar as it would give an indication to the market about how much G-Secs it would have to absorb.

Mr Maneesh Dangi, Head, Debt Funds, Birla Sun Life Mutual Fund, also agreed that the RBI could announce an OMO of Rs 30-50,000 crore. Though it would not be enough to tackle the liquidity shortage, it is one of the first steps the RBI could take in addition to other steps. “It is an evolving situation. If the inflation had been lower, then RBI may have cut CRR. But now it is likely the RBI will announce OMOs for now and follow it up with a CRR cut in January,'' he said.