RBI announces special open market operations (OMOs) for the simultaneous purchase and sale of government securities.


The RBI stated that it would buy bonds worth 200 billion rupees and sell a corresponding amount of bills.
Yields on Indian government bonds fell abruptly after the announcement of the special MOOs.
The Reserve Bank will buy some securities worth 10,000 rupees by the method of the extra-price auction.

The Reserve Bank of India announced on Tuesday that it will buy and sell longer-dated bonds simultaneously in two tranches in two special open market operations (OMOs) on 27 August 2020 and 3 September 2020.

In the midst of this move, Indian traders were not impressed, saying the bank needed to do more to convince investors.

Yields on Indian government bonds fell shortly after the announcement of special OMOs worth 200 billion rupees to raise funds for the country’s economy.

The RBI is pursuing a special OMO – similar to the Federal Reserve’s “Operation Twist”, in which bonds with longer maturities are bought and bonds with shorter maturities are sold for the same value.

COVID-19 and the Indian economy

India has been a constant borrower of substantial sums of money to support its economy in the midst of the coronavirus pandemic due to the decline in its revenues caused by weak demand in the country.

The Reserve Bank said it would buy Rs 200 billion worth of bonds and at the same time sell short-term Treasury bills in two special OMOs.

Meanwhile, the Reserve Bank carried out two open market operations, aggregating 30,000 rubles in two tranches in March to increase market liquidity. It is important to note that the first tranche of the auction was worth 15,000 rubles, while the second tranche received a greater response from the market.

Currently, bond yields have risen in eight out of nine trading sessions and increased to 22 basis points in the last trading sessions on Monday. The following day, gains on 10-year benchmark bonds dropped to 9 basis points following the Reserve Bank’s special announcement.

Murthy Nagarajan, Head of Fixed Income at Tata Asset Management, said:

“They (RBI) came because all other auctions could have failed”.

He also added:

“There is a discrepancy. RBI’s intervention was expected when the 10-year auction was 5.90%-6.0%; they did not come, which led to this problem. The RBI will have to do two more ‘Operation Twist’ to calm the market: “The bond shares fell a little after the Reserve Bank put the prices on hold on August 6. Investors believe the ten-year bond will rise by 6.30% this week.


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