(LiveMint)
The Reserve Bank of India (RBI) will buy government bonds worth up to Rs10,000 crore on 17 May, a move that could bring some relief to the bond market which is reeling under the pressure of rising yields despite a slew of regulatory measures. Bond prices and yields move in opposite directions.
The purchase of securities will be made under the central bank’s open market operations (OMOs), RBI said on Friday. The decision is based on the “assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward”.
Last week, RBI withdrew the clause that forced foreign portfolio investors (FPIs) to buy government bonds and state development loans with at least three years of residual maturity. In April, it had increased the limits for FPIs to buy Indian bonds and also allowed banks to spread the provisioning for losses on their bond portfolio over four quarters.
According to bond dealers, none of these measures seem to have helped revive demand, which in turn is keeping yields elevated. But the OMOs announcement may give the market a breather. “Yields may fall in response to the OMO announcement because it changes the demand-supply dynamics in favour of the market. It will also boost market sentiment,” said Soumyajit Niyogi, associate director at India Ratings and Research.
