RBI to infuse Rs 2.90 lakh crore liquidity via bond buys, USD swap
The RBI said it will purchase Rs 2 lakh crore of government securities in four tranches of Rs 50,000 crore each through open market operations (OMO) on December 29, January 5, January 12 and January 22.
The company will also hold a $10 billion call/sell swap auction on January 13 to facilitate dollar liquidity. The measures came as system liquidity turned negative in mid-December and the weighted average call rate rose to 5.46%, above the repo rate of 5.25%.
“The announced operations go beyond market expectations and should provide confidence in permanent liquidity availability, ease supply-demand concerns and support investor sentiment in the bond market,” said VRC Reddy, head of treasury at Karur Vysya Bank. “Overall, timely intervention from the RBI is likely to stabilize yields and improve transmission across the curve.”
Between December 11 and 18, the central bank had provided Rs 1.45 lakh crore through OMOs and $5 billion in swaps, but liquidity tightened again after tax outflows, yields rose and bids came with higher-than-expected coupons, forcing Power Finance Corp (PFC) to cancel the sale of Rs 6,000 crore bonds.
The 10-year benchmark rate has increased by 20 basis points since December 5, despite the quarter-point rate cut offered in the last policy review.
To be sure, the benchmark yield fell to 6.63% on Tuesday, after touching 6.70% (the highest level since March) from 6.66% the day before. “The upward pressure on yields reflects the unfavorable demand supply facing the market and the supply of government bonds is expected to increase in the fourth quarter of FY26,” said Gaura Sengupta, chief economist at IDFC First Bank.
State governments collectively raised Rs 33,720 crore through bond sales on Tuesday at higher-than-expected returns as investors demanded higher rates.
Liquidity conditions are expected to improve towards the end of the month as government spending returns to the system, traders said.
Separately, Bank of India raised Rs 10,000 crore of long-term infrastructure bonds by 7.23%. The state-owned bank received a total of 83 bids worth Rs 15.305 billion.
Apart from this, the bank accepted 37 bids amounting to Rs. 10,000 crore, he said in a statement.
