Reserve Bank of India To Conduct OMO To Curb Yields
Reserve Bank of India announced that it would conduct a notable Open Market Operation (OMO) after analysing the ongoing liquidity, market situation and financial conditions. As part of OMO, it will sell and buy bonds worth of Rs 10,000 Cr ($1.4 billion) at once. This is the first time RBI will be implemented such type of operation. Earlier, ‘Operation Twist’ performed in the US during the start of the decade.
The bond returns have been soaring because of no change in the key repo rate. RBI hasn’t made any changes in its key repo rate earlier this month. It will purchase worth of Rs 10,000 Cr benchmark 10-year bond. Meanwhile, it decided to sell four bonds of similar worth will mature in 2020.
While the central bank said that it would purchase worth of Rs 10,000 Cr Govt bonds. These bonds would mature in the year 2029. At the same time, it would sell Rs 10,000 Cr of short-term bonds mature in 2020.
Madhavi Arora, an economist from Edelweiss Securities said that Operation Twist taken by the Reserve Bank of India is promising. She later said that the present steep yield curve would hardly reflect the actual state of the economy.
By and large, market participants believed that the Government would likely to declare a slew of measures in budget 2020 likely to be on February 1, to boost the growth in the economy. On the other hand, there are concerns about the fiscal deficit.