 "Rs 10,000-cr OMO balm for market")
The Reserve Bank of India (RBI), after market hours on Tuesday, announced open market purchase of government bonds up to Rs 10,000 crore. However, this step might not help in easing the liquidity situation significantly.
The previous government bond auction, worth Rs 12,000 crore, was on February 15. This is the second OMO RBI has decided to conduct this financial year. The previous OMO of up to Rs 10,000 crore, was on March 1.
In the mid-quarter monetary policy statement on Tuesday, RBI said it would continue to actively manage liquidity through various instruments, including OMOs, to ensure adequate flow of credit to productive sectors of the economy.
According to the Street, the impact of OMOs will be marginal.
"Daily borrowings by banks continue to be over Rs 100,000 crore, because banks are using their excess Statutory Liquidity Ratio (SLR) to borrow from RBI's Liquidity Adjustment Facility (LAF) and lend that money to meet their fiscal-end targets," said N S Venkatesh, chief general manager and head of treasury, IDBI Bank. This is particularly the case because deposit growth in the system has been slow this financial year.
Finance Minister P Chidambaram yesterday had said RBI would address the concerns pertaining to liquidity in its mid-quarter review of the monetary policy on Tuesday. "I am sure he (RBI Governor D Subbarao) will address the issue of liquidity and there will be a paragraph on liquidity in the policy," said Chidambaram.
Banks borrowed Rs 1,20,320 crore from RBI's LAF window, compared with a daily average borrowing of over Rs 1,00,000 crore in the last one month. Yesterday, banks had borrowed Rs 1,42,670 crore from the LAF window.
According to J Moses Harding, head of economic and market research, IndusInd Bank, a better solution to address the liquidity concern is government spending flowing back into the system. But in a situation where the government wants to maintain the fiscal deficit target as budgeted, it is very difficult to estimate the quantum and timing of government spending.
Harding expects the daily average LAF borrowing for the current fortnight to be Rs 120,000 crore. The reporting fortnight ends this Friday.
According to Harding, the liquidity situation will improve from the start of the next financial year. However, the OMO announcement is expected to boost bond-market sentiments.
The yield on the 10-year benchmark government bond 8.15 per cent 2022 which ended at 7.90 per cent, compared with previous close of 7.88 per cent, is expected to fall to 7.87 per cent tomorrow, expects the Street.
The previous government bond auction, worth Rs 12,000 crore, was on February 15. This is the second OMO RBI has decided to conduct this financial year. The previous OMO of up to Rs 10,000 crore, was on March 1.
In the mid-quarter monetary policy statement on Tuesday, RBI said it would continue to actively manage liquidity through various instruments, including OMOs, to ensure adequate flow of credit to productive sectors of the economy.
According to the Street, the impact of OMOs will be marginal.
"Daily borrowings by banks continue to be over Rs 100,000 crore, because banks are using their excess Statutory Liquidity Ratio (SLR) to borrow from RBI's Liquidity Adjustment Facility (LAF) and lend that money to meet their fiscal-end targets," said N S Venkatesh, chief general manager and head of treasury, IDBI Bank. This is particularly the case because deposit growth in the system has been slow this financial year.
Finance Minister P Chidambaram yesterday had said RBI would address the concerns pertaining to liquidity in its mid-quarter review of the monetary policy on Tuesday. "I am sure he (RBI Governor D Subbarao) will address the issue of liquidity and there will be a paragraph on liquidity in the policy," said Chidambaram.
Banks borrowed Rs 1,20,320 crore from RBI's LAF window, compared with a daily average borrowing of over Rs 1,00,000 crore in the last one month. Yesterday, banks had borrowed Rs 1,42,670 crore from the LAF window.
According to J Moses Harding, head of economic and market research, IndusInd Bank, a better solution to address the liquidity concern is government spending flowing back into the system. But in a situation where the government wants to maintain the fiscal deficit target as budgeted, it is very difficult to estimate the quantum and timing of government spending.
Harding expects the daily average LAF borrowing for the current fortnight to be Rs 120,000 crore. The reporting fortnight ends this Friday.
According to Harding, the liquidity situation will improve from the start of the next financial year. However, the OMO announcement is expected to boost bond-market sentiments.
The yield on the 10-year benchmark government bond 8.15 per cent 2022 which ended at 7.90 per cent, compared with previous close of 7.88 per cent, is expected to fall to 7.87 per cent tomorrow, expects the Street.