The Reserve Bank of India will conduct a simultaneous sale and purchase of bonds on December 30 following a review of liquidity situation. Earlier this week, the central bank had conducted a similar open market operation (OMO) and purchased securities worth Rs 10,000 crore and sold securities worth Rs 6,825 crore.
The RBI said it will buy Rs 10,000 crore worth of the current benchmark 10-year bond while selling four bonds maturing in 2020 for an equivalent amount.
The apex bank reserves the right to decide on the quantum of purchase/sale of individual securities, accept bids/offers for less than the aggregate amount, purchase/sell marginally higher than the aggregate amount due to rounding-off effects and accept or reject any or all the bid/offers either wholly or partially without assigning any reasons.
The eligible participants should submit their bids/offers in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system between 10.30 a.m. and 12.00 noon on December 30.
It is the first time the RBI has conducted an OMO of this kind, similar to the 'Operation Twist' carried out in the United States near the start of the decade.
Bond yields rising
Bond yields have been rising since the RBI unexpectedly left its key repo rate unchanged earlier this month, even as it slashed its forecast for economic growth to its lowest in over a decade.
Most market participants expect the government to announce measures to tackle the growth slowdown in the federal budget in February while there are serious concerns of fiscal slippage this year, too. The government may thus be forced to borrow more from the market to fund its fiscal deficit which could push bond yields up more.
The benchmark 10-year yield had risen as much as 37 basis points to 6.84 percent from its level before the RBI shocked markets by keeping rates steady this month. It is currently still up 28 bps. The yield curve has steepened sharply despite the RBI cutting the key repo rate by 135 bps since February.
Simultaneously buying long-end bonds and selling short-end bonds should lead to a flattening of the yield curve. But traders said it was not clear whether there would be a series of such auctions or just the one. They are hoping the RBI will step in to prevent sharp rises in yields at a time when there is a clear need to encourage growth.
With inputs from agencies.
First Published: IST