The Reserve Bank of India (RBI) sold bonds worth ₹11.95 billion in the week ended September 20, news agency Reuters reported on Friday, September 27.
The central bank continued selling government bonds from its portfolio for the eleventh successive week, its longest streak since January 2022, as per the report.
The total bond sales in the 11-week period have touched ₹240.6 billion, the agency reported, quoting RBI data.
Small quantities of bond sales could be used to address demand and supply dynamics for bonds, Gaura Sen Gupta, chief economist at IDFC First Bank told Reuters. She also stated that demand has been supported by bond index inclusion flows and long-term investor interest.
The small pool indicated the RBI wants to do this in a non-disruptive manner, and such sales could continue as the banking system liquidity conditions are expected to remain comfortable with the rise in core liquidity, she said, as per the report.
The Reserve Bank of India (RBI) typically buys or sells bonds to adjust the banking system's liquidity and rates to align with the monetary policy, but these operations impact the yields of the bonds, according to the agency report.
The banking system liquidity in the country averaged a surplus of more than ₹1 trillion from the July to September quarter, according to the report.
“This time, the demand-supply equation is skewed much in favour of demand, so we would not see any impact till the quantum is around 20-30 billion rupees per week,” Vijay Sharma, senior executive vice president at PNB Gilts, told the news agency.
If the central bank is adamant about not letting the yields fall too much, “they will then resort to actual open market sale of debt which would debilitate the markets in the short run,” Sharma was quoted as saying in the report.
