RBI sells 65 per cent of Rs 10,000 crore government bonds

MUMBAI: The Reserve Bank of India on Monday sold about 65 per cent of Rs 10,000 crore government bonds stipulated for an unorthodox open market operation or OMO, which was primarily aimed at sucking excess funds from the system.

These bonds have varying maturities of seven, 12 and 13 years. Yields were priced at about 20-25 basis points above the liquid ten-year benchmark bond. However, the central bank did not accept bids for the bonds with three-year maturity as it did not find any favourable quote.

A basis point is a hundredth of a percentage point.

“Cut-off yields were all reasonably priced. We may expect more such OMO sales from RBI that may not be comfortable with the falling yields,” said a senior executive from a primary dealership company, requesting anonymity.

The central bank had last conduced OMO sales on July 18, 2013 for Rs 12,000 crore.

According to bond dealers, the falling bond yields, which move inversely to prices, may have prompted RBI to conduct the OMO sales. The central bank, which has a fierce anti-inflation stance, is likely to cut interest rates only if lower inflation persists.

Government bond yields are expected to fall further on the latest benign inflation data and improvement in India’s macroeconomic fundamentals. The benchmark yield may dip to 8.25 per cent or even lower in the next three-six months.