MUMBAI: After months of speculation if the RBI will directly buy government bonds from the secondary market, the central bank looks to have settled it. In the week ended September 20, the RBI purchased government securities (G-Secs) worth nearly Rs 6,900 crore from the secondary market. This is its biggest weekly direct market purchase ever, excluding the open market operations (OMOs), which are done on a pre-planned basis.
Data from the RBI also shows that in the first three weeks of this month, the central bank’s G-Sec purchases from the secondary market aggregated nearly Rs 11,000 crore, also its highest monthly purchases ever. According to bond market players, this could help keep the interest rate in the market from rising. In addition, it can also give comfort to the government about its borrowing programme in the second half, the schedule for which is due on September 30.

Besides purchasing through the Operation Twist — under which the RBI simultaneously buys and sells G-Secs through a planned programme — the central bank was not used to purchasing from the secondary market. “Of late, the RBI has been buying G-Secs from the secondary market to restore demand-supply balance in the (government) bond market,” said a bond dealer.
To this end, the RBI has taken several steps. Latest RBI data show that so far this month, Through three RBI OMO twists, the central bank has purchased G-Secs worth Rs 27,132 crore, while at the same time has sold bonds worth Rs 29,900 crore. It has also allowed G-Secs worth nearly Rs 36,000 crore to remain unsold in two of the four auctions and rejected all bids for its planned OMO purchase worth Rs 10,000 crore.
According to bond market players, RBI’s decisions indicate its strong intention to not let the yield in the bond market, especially that of the 10-year benchmark, rise from the current levels.

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