The purchase is part of RBIs plan to inject one trillion rupees of liquidity this month through bond purchases and an equivalent of $5 billion through a currency swap. The central bank’s efforts to protect the rupee, Asia’s worst-performing currency this year, have drained money from the system, along with seasonality. liquidity problems.
The RBI bought Rs 500 billion worth of bonds to ease the liquidity crisis due to currency interventions and seasonality. Despite a recent interest rate cut, yields continue to rise. Analysts expect further sustained liquidity injections depending on the RBI’s balance of payments pressures and foreign exchange operations.
The monetary authority’s open market operations through bond purchases can help offset cash constraints and limit a rise in market interest rates. Yields on the benchmark 10-year bond have risen nearly 12 basis points this week despite a quarter-point rate cut and the RBI’s liquidity injection plan last Friday.
A global interest rate review, a likely end to the domestic rate-cutting cycle and a supply-demand imbalance have weighed on local bonds.
Thursday’s auction was the first announced OMO purchase since May. The authority injected Rs5.2 trillion worth of liquidity earlier this year to boost liquidity. It bought 273 billion rupees worth of bonds through screen purchases in November.
According to Madhavi Arora, chief economist at Emkay Global Financial Services Ltd, the RBI may have to make an additional sustained liquidity injection, possibly up to Rs 800 billion or more in the March quarter, depending on the severity of balance of payments pressures and the size of its foreign exchange operations.
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