RBI Steps Up Bond Purchases To Calm Debt Markets

The Reserve Bank of India will step up purchases of government bonds to keep interest rates in the debt markets in check.

The central bank will buy bonds worth Rs 30,000 crore via its open market operations this month, it said in a release on Friday. The central bank already bought Rs 10,000 crore in bonds this week.

“The response to the open market purchase auction conducted on March 20, 2020 has been positive. Meanwhile, with the COVID-19 related dislocations, stress in certain financial market segments is still severe and financial conditions remain tight. The RBI’s endeavor is to ensure that all markets segments function normally with adequate liquidity and turnover,” the RBI said in its statement on Friday.

The bond purchases will happen in two tranches of Rs 15,000 crore each. The first of these operations will be conducted on March 24.

According to the release, the RBI will buy the following securities next week:

• 6.84 percent Government security 2022
• 7.72 percent Government security 2025
• 8.33 percent Government security 2026
• 7.26 percent Government security 2029

Bond markets responded positively to the central bank’s decision and yields slipped 13 basis points to close the week at 6.26 percent.

The RBI has been conducting targeted interventions in a bid to contain the fallout of the novel coronavirus. Unlike other central banks though, the Indian central bank is yet to cut benchmark policy rate cuts. The central bank has instead taken targeted measures to ensure that the local foreign exchange and money markets continue to function in an orderly manner.

Last week, RBI Governor Shaktikanta Das announced a second $2 billion forex swap to manage the volatility in the foreign exchange market. The RBI announced long term repo operations worth Rs 1 lakh crore to be conducted in tranches. The first of these tranches was conducted on Monday, however, it saw a tepid response.

While there have been no interest rate cuts announced by the RBI, Das said nothing is ruled out in the current fast-evolving situation.