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Tight liquidity in the banking system has prompted the Reserve Bank of India (RBI) to announce the purchase of government securities aggregating Rs 12,000 crore through Open Market Operations (OMOs) on December 4.
“Consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank has decided to conduct OMOs through multi-security auction,” the RBI said in a statement.
The banking system has been facing liquidity tightness since the second week of November, with banks collectively borrowing over Rs 1-lakh crore on a daily basis.
Last week, RBI Deputy Governor H. R. Khan had said at a conference that the central bank had not ruled out any option in case of liquidity tightening.
Yields will soften
According to N. S. Venkatesh, Chief General Manager and Head of Treasury, IDBI Bank, “this (OMO announcement) will help the government yields to soften by about 3-4 basis points.
“The yields are likely to decline to 8.15 per cent from the current 8.19 per cent levels,” Venkatesh said.
The government securities that can be purchased by market participants are 8.24 per cent bond maturing in 2018, 8.19 per cent bond maturing in 2020, 8.15 per cent bond maturing in 2022 and 8.28 per cent bond maturing in 2027.
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