RBI to Ease Liquidity Via Purchase Of Govt Bonds Worth Rs. 10,000 crore

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    As bond yields harden despite a number of regulatory steps, government is likely to intervene again and provide some relief both to the ailing bond markets as well as infuse liquidity into the system by buying government bonds worth Rs. 10,000 crore through OMOs.

    RBI to Ease Liquidity Via Purchase Of Govt Bonds Worth Rs. 10,000 crore

    RBI on Friday said the decision has been taken basis the "assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward". The securities will be purchased under the central bank's open market operations (OMOs) on May 17.

    In April, the RBI increased investment limits in Indian bonds for foreign portfolio investors and at the same time allowed banks to spread the losses on account of their bond holdings over four quarters. Also, during the last week, the central bank did away with the provision that mandated FPI investment in government bonds. All these measures however as per dealers in the market did not improve the demand sentiment and as a result, bond yields continued their upward trajectory. However, it is expected that the open market operations by the RBI can give bond market the much required breather.

    Yield on the 10-year benchmark bond has risen by 40 basis points to 7.73% since the start of 2018. Bond yield and bond price move in opposite direction.

    Demand from public sector banks has weakened in light of the heavy losses they had suffered from their bond portfolios in the last two quarters.

    Other factors that have hit government borrowings include rate hike fears, volatile external situation, increasing crude oil prices and US treasury yields.


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