RBI launches US-style method to lower yields

Upon reviewing the current liquidity and market scenario, the Reserve Bank of India (RBI) has decided to conduct a simultaneous sale and purchase of bonds under its Open Market Operations (OMO) for Rs 10,000 crore each, using the multiple price auction method, to infuse durable liquidity.

The central bank will purchase 6.45 per cent of GS 2019 government bonds that will mature on October 7, 2029, whereas, it will sell 6.65 per cent GS 2020 security (maturity date of April 9, 2020), 7.80 per cent GS 2020 (May 3, 2020), 8.27 per cent GS 2020 (June 9, 2020) and 8.12 per cent GS 2020 (December 10, 2020) for an aggregate amount of Rs 10,000 crore.

Discussing about the auction, the RBI added that the interested and eligible participants can bid or submit offers in electronic format on RBI's Core Banking Solution (E-Kuber) between 10.30 am and 12.00 pm on December 23, 2019. The result of the auctions will be announced on the same day and the successful participants should ensure availability of funds or securities by the next day.

It is being said that RBI’s OMO concept is similar to ‘Operation Twist’ that the Federal Reserve of the United States introduced in 2011-2012. However, this move of RBI is being seen by market participants as an attempt to bring longer-term yields lower.

Post this announcement, the benchmark 10-year yield jumped 4 basis point to 6.75 per cent.