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Informist, Friday, Jan. 17, 2025

--RBI did not buy or sell any gilts via OMO in week ended Jan 10

NEW DELHI – The Reserve Bank of India data on Friday showed it did not buy or sell gilts through screen-based operations in the week ended Jan. 10, two weeks after it bought gilts worth INR 200 million. The purchases in the week ended Dec. 27 were the first screen-based gilt buys by the RBI in over five months.

Bond market traders have been expecting the data to show large RBI purchases, worth billions of rupees, since December. Since the central bank has refrained from such purchases through screen-based operations so far, traders said the RBI is likely to announce open market purchases through an auction when it wants to infuse liquidity. The regulator's decision to provide support to money markets through daily variable rate repo operations starting Thursday "until further notice" has somewhat dampened the hope of more permanent measures immediately, dealers said.

In a meeting with RBI officials last week, treasury officials from banks and primary dealers asked the central bank to infuse durable liquidity into the banking system through open market purchase operations for government bonds, among other measures. Analysts, including those at Kotak Mahindra Bank, estimate durable liquidity fell into a deficit last week for the first time in at least five years.

The RBI is said to be considering infusing liquidity through more permanent measures such as open market purchase of gilts, currency swaps, or a cut to the banks' Cash Reserve Ratio, Bloomberg reported Thursday, citing sources aware of the development. The report said that the RBI may "add lasting liquidity" through tools such as foreign exchange swaps, purchase of gilts through open market operations or a further cut in the cash reserve ratio.

Economists at QuantEco Research think liquidity conditions are now an "immediate policy priority" for the RBI. They expect the central bank to conduct OMO purchases to the tune of INR 3.0 trillion starting this month and until the end of 2025-26 (Apr-Mar). According to Nomura rates strategist Nathan Sribalasundaram, open market purchases are "becoming more likely". Standard Chartered Bank also said liquidity management will now be prioritised over interest rate cuts at the RBI's next monetary policy review in February.

Before the purchases of gilts in the week ended Dec. 27, the RBI had largely been on the selling side in the current financial year. Between Jul. 5 and Sept. 20, the central bank net sold gilts worth INR 240.40 billion through OMOs, data showed. The pace of these sales had slowed, before halting in the week ended Sept. 27. At that time, banking system liquidity had been in a heavy surplus.  End

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

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