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Informist, Friday, Jan. 24, 2025

 

--RBI bought INR-101.75-bln gilts outside OMO auction in wk to Jan 17 

 

MUMBAI – The Reserve Bank of India bought gilts worth INR 101.75 billion through screen-based operations in the week ended Jan. 17, data from its weekly statistical supplement showed Friday. This is the largest gross weekly bond purchase since the RBI ended its government securities acquisition programme in September 2021. It is also the largest net purchase since August of that year, and the most government securities bought outside auctions in a week since Apr. 30, 2021.

 

With the liquidity deficit in the banking system widening due to RBI's intervention in the foreign exchange market, calls for open market purchase of gilts have been increasing. The large purchases come after weeks of speculation from analysts and market participants on whether the RBI would infuse durable liquidity, which has been estimated in deficit since early January. Traders had shrugged off the RBI's gilt buys worth INR 200 million in the week ended Dec. 27 as insignificant.

 

Bond market traders have been keenly tracking Clearing Corp. of India Ltd. data for clues on the RBI's buys in the secondary market, and have been left disappointed until Friday. For the week ended Jan. 17, 'Others' – a segment that comprises insurance companies, provident funds and the central bank – bought gilts worth INR 199.66 billion on the secondary market. For the five days to Jan. 17, the RBI's net liquidity injected into the banking system was INR 2.23 trillion on average.

 

To cool overnight rates amid tight liquidity, the central bank has also been conducting daily variable rate repo auctions since Jan. 16. The 10-year benchmark gilt yield may fall as much as 5 basis points on Monday after the RBI's purchase, which is expected to continue at the same pace for the next several weeks, dealers said. The central bank's liquidity support coincided with the retirement of Michael Patra, the deputy governor in charge of monetary policy and financial market operations until Jan. 14. The latest data showed RBI bought gilts on Jan. 15, Jan. 16 and Jan. 17.

 

Earlier this month, economists at QuantEco Research said that 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). 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. In its FY26 outlook, the bank estimated that the RBI would purchase gilts worth up to INR 1.50 trillion through open market purchases. 

 

In a meeting with RBI officials on Jan. 9, treasury officials from banks and primary dealers asked the central bank to infuse durable liquidity into the banking system. The methods suggested included open market bond purchase operations, as well as a cash reserve ratio cut or long-term dollar-rupee buy-sell swaps.  End

 

Reported by Cassandra Carvalho and Srijita Bose

Edited by Tanima Banerjee

 

 

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