Reserve Bank of India (RBI) continues to purchase government bonds through the open market operation (OMO) in order to ease liquidity constraint in the banking system.
This was hinted by Economic Affairs Secretary Arvind Mayaram when he said the government doesn’t think the central bank has slowed the pace of its bond purchase programme.
It may be noted that liquidity deficit in the banking system is around Rs 1 trillion, way above the central bank’s stated comfort zone of Rs 600 billion. One of the reasons for liquidity deficit is sluggish government spending.
Mayaram’s comments comes amid apprehension among commercial banks operating in the bond market
that the RBI has not announced an open market operation since May 7.
The 10-year benchmark Indian federal bond yield rose 3 basis points to 7.44 percent in the absence of an open market operation, but cooled off later in the week on bullish auction results and demand from foreign investors.
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