MUMBAI: The Reserve Bank of India resumed purchase of government bonds after a gap of six months, as it infused liquidity into the banking system via the secondary market, according to central bank data released on Friday.
The RBI net bought bonds worth 124.70 billion rupees ($1.41 billion) in the week ending November 7, and was on the bidding side for three of the four sessions for which data was published.
The settlement of such screen-based purchases occurs a day after the trade.
Market participants had speculated RBI’s presence after data showed an investment category that includes the central bank buying a net 205 billion rupees of bonds last week.
Concerns over demand were also pushing up bond yields, which saw the RBI cancelling auction of a seven-year paper on October 31.
The 10-year benchmark yield fell 2 basis points to 6.51%.
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“The purchases are on expected lines, as the earlier elevated figures in the ‘others’ category were driven by a single underlying factor,” said VRC Reddy, treasury head at Karur Vysya Bank.
“Such buying is likely to continue, followed by possible Open Market Operation (OMO) auctions from December or January.”
The RBI typically sells or buys bonds to adjust banking liquidity and rates to align them with its monetary policy. However, these operations also impact yields.
In January, the central bank had bought bonds worth over 388 billion rupees through screen-based operations before embarking on an aggressive cycle of open market purchases.
They had net bought bonds worth 4.84 trillion rupees from January-end to mid-May via OMO auctions.
Some traders also speculate that the purchases would be for replacement demand, as RBI had hefty stock of 5.15% 2025 bond that matured on November 7.
“That is why the numbers have started dropping from the second half of this week as the replacement demand would have been completed,” a senior treasury official said.
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