Indian five hundred rupee banknotes are arranged for a photograph in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

RBI To Buy Rs 36,000 Crore Of Bonds In October To Add Liquidity

The Reserve Bank of India has given upfront guidance of its planned bond purchases under the open market operation in the month of October.

In a statement before debt markets opened for trade, the central bank said it would infuse Rs 36,000 crore via bond purchases this month. This would be done via three auctions in the second, third and fourth weeks of October. The specific securities for buybacks will be notified later, the RBI said.

The announcement is based on an “assessment of the durable liquidity needs going forward and the seasonal growth in currency in circulation observed in build-up to the festive season...” said the RBI.

Also read: RBI Allows Lenders To Dip Further Into SLR, Assures Of Liquidity Support

The RBI stepped up liquidity injections in September after signs of strain emerged in some parts of the money market. Liquidity tightened for a host of reasons including advance tax outflows. The flow of available liquidity was constrained after defaults by the IL&FS group led to nervousness in the markets. As a result, short-term rates started to rise.

In September, the RBI conducted two open market operations. It also allowed an additional carve out from the SLR kitty of banks, which could be used to meet Liquidity Coverage Ratio requirements.

Even in the normal course of things, the RBI had anticipated tighter liquidity conditions in the second half. It reiterated this on Monday.

“The RBI had telegraphed in its previous post-monetary policy press conferences that the system liquidity will move into deficit in the second half of the fiscal year and that the evolving liquidity conditions shall determine its choice of instruments for both transient and durable liquidity management.”

Bond yield fell due to the announcement and the governments decision to cut gross market borrowings in the second half.

RBI To Buy Rs 36,000 Crore Of Bonds In October To Add Liquidity

Also read: Commercial Paper Issuance Slides Sharply In September Amidst Liquidity Crunch