RBI sucks out Rs 3,500 cr via OMO to stem fall in yields
Raghu Mohan
Mumbai, Feb 15: The Reserve Bank of India on Tuesday sucked out close to Rs 3,500 crore from the system by putting two securities on its open market operation (OMO) window. The two securities were the 12.32 per cent 2011 at Rs 112.75 (yield 10.35 per cent) and the 12.25 per cent 2008 at Rs 111.20 (yield 10.25 per cent).
In its bid to cool the market and stem the fall in yield of Government securities, the RBI put yet another paper on its OMO window at the fag end of the day - the 12 per cent 2008 at Rs 108.95 (10.35 per cent). The paper will be sold on Wednesday.
Prices of long-term bonds fell by over Rs 2 in line with the RBI's price line. While the 12.32 per cent 2011 fell to its sale-window price of Rs 112.75 from its overnight level of Rs 112.80 to finally close at Rs 111.30, other dated-stock like the 11.83 per cent 2014 closed at Rs 107 (Rs 109.40-109.45) with the 12.29 per cent 2010 at Rs 111.30 (Rs 112.65).
Money market dealers were taken aback by the RBI move of putting three papers on OMO with random yields.For instance, the 2008 September paper carried an yield of 10.25 per cent while the third paper - matured in May 2008 - offered 10.35 per cent, 10 basis points lower even though the maturity of the paper was four months shorter.
"There is no rationale behind the central bank's strategy in cooling the market. It should have acted much earlier when the yield was falling day by day," said a dealer on condition of anonymity.
The fall in yield was triggered by the Centre's decision to cut the interest rates on PPF by one percentage point on January 14.
RBI deputy governor YV Reddy, however, said the OMO was not a signal from the central bank. "The OMO sales which commenced today are not meant to be any sort of signal except that it is now trying to capture somewhat excessive overenthusiasm among the participants," he told a news agency."There has been among some participants more than the necessary optimism bordering on somewhat speculative positions. Market participants are mature enough to understand that too much of excessive enthusiasm is not a very good thing," Reddy said.
"Yields had fallen excessively. The RBI had forced upon a correction. The bond market had became a no-brainer like IT stocks. You put money, and next day you make some more. It was debatable whether bond prices should move in a situation where the Centre had overshot its budgeted borrowing and market expects more dated-stock auction to the extent of nearly Rs 6,000 crore," e-Mecklai senior consultant, Sharat Chandra, said.
- Indian Express Newspapers (Bombay) Ltd. |
