The Reserve Bank of India taking heed of the liquidity condition has announced a special open market operation, wherein it will sell and purchase bonds worth Rs. 10000 crore each simultaneously on Monday. Earlier during the week the apex bank conducted its first US-styled "operation twist" and bought and sold securities worth Rs. 10000 and Rs. 6825 crore, respectively.
This "operation twist" is said to ease off interest rates on the long term papers and involves buying of long-term government debt securities from the proceeds garnered from selling short term instruments by the central bank. The central bank said it has the authority to decide on the quantum of OMOs and might accept or reject any or all of the bids partially or wholly without giving any due reasons.
For the same, the RBI has announced that eligible participants can place their bids or offers in digital format on the RBI CBS system called E-Kuber between 10.30 a.m. and 12.00 noon on December 30.
Since the December 5 bi-monthly monetary policy review of RBI, when the apex bank in a surprise move kept the key policy rates unchanged, yield on benchmark 10-year bonds has risen by almost 37 bps to 6.84%. Currently also it is up 28 bps and this special OMO is said to ease interest rates.
Further there is no clarity whether there will be a series of such auctions or just one. Traders are expecting the RBI to intervene and curb sharp increase in yields when economic growth is to be pushed.