Reserve Bank of India jolts bond markets with decision to conduct open market operation sales

Mumbai October 8 dmanewsdesk: The Reserve Bank of India (RBI) on Friday jolted the bond markets with its decision to conduct open market operations (OMO) sales as a tool to manage liquidity.

OMO is a process through which the central bank buys or sells government securities which leads to the infusion or the withdrawal of liquidity.

“Going forward, while remaining nimble, we may have to consider OMO sales to manage liquidity, consistent with the stance of monetary policy. The timing and quantum of such operations will depend on the evolving liquidity conditions,’’ RBI governor Shaktikanta Das said even as the monetary policy committee (MPC) maintained the status quo on the policy rates.

He, however, did not provide any details about the size or its timing.

The announcement about the OMO sales and the uncertainty over its timing came as a rude surprise to the bond markets.

It sent yields on the benchmark 7.18 per cent 2033 bond soaring to a 14-month high of 7.36 per cent during intra-day trades after which it closed at 7.344 per cent against the previous close of 7.214 per cent.

At a press conference, Das said the OMO sales will be through an auction and not via screen-based route, done in the recent past.

Source: