RBI to sell bonds for Rs 10,000 crore next week to Crush liquidity

RBI to sell bonds for Rs 10,000 crore next week to Crush liquidity

The Reserve Bank of India (RBI to sell bonds for Rs 10) has announced that it would sell government securities worth Rs. 10,000 crore. These securities will be sold through OMOs (Open Market Operations). RBI is selling the securities to mop out liquidity from the market.

OMOs are the market operations carried out by RBI to sell bonds for Rs 10 for purchasing and selling of G-Secs(Government Securities) to or from the market to change the rupee liquidity obligations in the market.

If there is excess liquidity, the RBI to sell bonds for Rs 10 resorts to the sale of securities and restraint the rupee liquidity. Similarly, when the liquidity conditions are tight, the RBI buys securities from the market, thereby releasing liquidity into the market.

The market rates are being pulled down below the policy rates. Such move helps the daily overnight call rates to match up to the level of repo rate. The overnight call rate is the interest rate at which a bank borrows from another bank, and the repo rate is the IR at which banks borrows money from RBI. The current repo rate is 7.25 percent. But the overnight call rates are just 7.10 per cent to 7.15 per cent only.

“OMO sale is pure to sterilise excess liquidity, a part of liquidity framework,” said Soumyajit Niyogi, interest rate strategist, SBI DFHI. “While additional supply expected to push up bond yield further, but the short end (three-year paper) paper may attract commercial banks for LCR (Liquidity Coverage Ratio) requirements.”

The G-Secs are sold through the multi-security auction using the multiple price method and auction will be organised on July 14, 2015.

There will four G-Secs with three to twenty years maturity range will be sold in this auction. “There is an overall aggregate ceiling of Rs 10,000 for all the securities in the basket put together. There is no security-wise notified amount,” RBI said in a release.

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