The Reserve Bank of India will begin with its US-style "operation twist" today and buy 10-year government bonds worth Rs. 10000 crore by making use of the multiple price auction method. At the same time, it will also sell four government securities of the 2020 series. The process will thus enable easing of interest rates on the long term papers.
"On a review of the current liquidity and market situation and an assessment of the evolving financial conditions, the Reserve Bank has decided to conduct simultaneous purchase and sale of government securities under Open Market Operations (OMO) for Rs 10,000 crores each on December 23, 2019," said the central bank on December 19.
Despite excess liquidity and five consecutive rate cut by 135 basis points, yield on benchmark 10-year government bond has risen by almost 40 bps since December 5, when the RBI resorted to a rate pause amid rising inflation. This is because concerns around higher market borrowing by the government on risks of likely fiscal slippage weighed on bond yields.
But ahead of the RBI's OMO on December 23, the bond prices have scaled higher and consequently bond yield has fallen to 6.58%.
Meanwhile, Indian rupee traded lower at 71.15 per US dollar against its previous close of 71.12.