The Reserve Bank of India (RBI) on Wednesday fulfilled a long-standing demand of bond market participants of having an open market operations (OMO) calendar of sorts, through which the central bank would commit its periodic support to the market.
As expected, the six-member monetary policy committee kept the policy repo rate and stance unchanged at 4 per cent, and ‘accommodative’, “for as long as necessary”, respectively.
Despite the surge in Covid-19 infections, the growth target also remained unchanged at 10.5 per cent for the fiscal, but inflation was tweaked upwards slightly. The CPI inflation is expected to be 5 per cent for Q4FY21, 5.2 per cent in Q1FY22, 5.2 per cent in Q2FY22, 4.4 per cent in Q3FY22 and 5.1 per cent in Q4FY22 with risks broadly balanced.
RBI Governor Shaktikanta Das said in his monetary policy statement for April that it will pre-announce a secondary market government securities (G-Sec) acquisition programme to commit upfront its support to the market. For the first quarter, it will buy bonds worth Rs 1 trillion from the secondary market, starting April 15, when it will buy bonds worth Rs 25,000 crore.
At 10.55 AM, the 10-year bond yields were at 6.07 per cent, from its previous close of 6.122 per cent.
“The OMO calendar of sorts is a welcome development and will help in orderly evolution of the yield curve,” said a bond trader with a foreign bank, requesting anonymity.
In FY21, the RBI purchased a net Rs 3.13 trillion of bonds from the market to support the huge market borrowing programme of over Rs 12 trillion.
The RBI governor had recently assured the market that the central bank will buy at least as much as the last financial year this time also. Besides, other measures open up space for availability of another Rs 4 trillion in liquidity.
The RBI will also increase the scope of its variable rate reverse repo (VRRR) auctions with increased tenure.
“This is part of our liquidity management and is not to be interpreted as liquidity tightening,” the RBI governor said in his remarks, streamed online, on Wednesday morning.
The on-tap targeted long term repo operations (TLTRO) will continue till September 30 to help ease the liquidity needs of the system. It had come to a close on March 31.
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