bonds: RBI again steps in to normalise liquidity
In Gsec’s latest acquisition program, RBI will sell Rs 15,000 crore of government securities to match the similar amount of long-term securities it plans to buy in the market. This will not inject any additional liquidity into the system, which is estimated at around Rs 7 lakh crore of excess liquidity currently.
This is the first time since the pandemic that the RBI has allowed the neutrality of its bond purchases by buying the same amount of bonds as it has sold to stabilize yields without injecting additional liquidity.
Prior to that, he bought more bonds than he sold, adding around Rs 2.40 lakh crore in liquidity to the banking system during that fiscal year.
Dealers have said this is an important move by the central bank, as it ultimately heads for normalization from record levels of liquidity and low interest rates.
“This is the first time that the RBI has conducted GSAPs in a manner similar to a twist operation,” said Vijay Sharma, executive vice president of PNB Gilt, referring to the central bank’s program of buying securities. long term and sell short term securities to avoid returns. to increase.
At the GSAP auction announced on Monday, the RBI plans to sell securities maturing 2022 and buying bonds maturing 2028, 2031 and 2035. does not want any further increase in liquidity from the system as it has sucked liquidity from the system. system through regular variable repo, ”said Sharma.
“It can be called a micro-baby. But given the amount of cash it doesn’t make any difference. The RBI has made it clear that its focus remains growth and rightly so. Cash should stay in surplus and we’re a long way from it. .a rate hike given the situation we have in hand, ”said Dwijendra Srivastava, CIO debt, Sundaram Mutual Fund.
Of course, slow growth and lingering uncertainties mean that liquidity is likely to remain in surplus mode for a long time to come. Therefore, a rate hike or even a change in RBI’s formal stance is unlikely anytime soon.
“Liquidity will remain in excess for a long time. Even if inflation exceeds 6%, that will not worry the RBI much. The key is an acceleration in credit growth which will lead to an increase in demand. If inflation stays between 5% and 6%, the RBI will keep ample liquidity. Rates could stay where they are if inflation drops below 4% and 5% until we really see growth accelerating, which is still a few months away, ”said Ashish Vaidya, treasury manager at DBS India.