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Thursday, September 26, 2013

RBI: Will take action including OMOs to ensure liquidity

The Reserve Bank of India on Wednesday assured the markets that it will take actions, including open market operations, to ensure adequate liquidity support in the system.

The central bank's assurance follows hardening of yields on government securities after governor Raghuram Rajan increased the repo rate, or the rate at which banks borrow from the RBI, by 25 basis points on Friday.

"Liquidity conditions have been tightening as reflected in the hardening of yields in the government securities market due to uncertainties around the government borrowing programme for the second half of 2013-14 as well as the prospective effects of banks' half-yearly account closure, the seasonal pick-up in credit demand, festival-related demand and sluggish deposit growth," the RBI said.

On Wednesday, the yield on the 10-year benchmark government bond 7.16% 2023 ended at 8.79% compared with previous close of 8.84%. The overnight call rate ended the day at 9.5% compared to its previous close of 9.48%.

The treasury head of a private sector bank said the RBI is not comfortable with the sudden spike in yields and hence its assurance to market.

"The increase in the reporate has not been well received by the market," the person said. "The central bank is also scheduled to conduct two government bond auctions. They want to soothe nervous."

Experts said the partial devolvement of the auction conducted by the central bank on Monday may have also triggered this move.

On Friday, the RBI will auction government bonds worth Rs 14,000 crore.

Beginning with the midquarter review of monetary policy held on Friday, the central bank began a calibrated unwinding of the exceptional measures undertaken since July so as to restore normalcy to financial flows. Currently, the RBI injectsabout Rs 1,50,000 crore into the system daily.

Source: EconomicTimes


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