RBI OMO Auction Draws ₹1.87 Lakh Crore Amid Liquidity Deficit
Why in the news
Bids at RBI’s bond-purchase OMO auction dwarfed the notified amount as banks sought cash during a prolonged liquidity shortage.
Key facts
- Offers: ₹1.87 lakh crore versus ₹40,000 crore notified.
- Cut-off prices were kept below secondary market prices because demand was excessive; PSU banks were main players.
- RBI has so far bought government securities worth ₹1 trillion through OMOs.
- The system saw a liquidity deficit for nine weeks in a row; net deficit was ₹1.77 trillion.
- An overnight VRR auction injected ₹1.33 trillion; a 14-day VRR of ₹75,000 crore was scheduled.
Bond market impact
- Corporate bond yields climbed though the MPC had cut rates by 25 bps.
- Government bond yields were steady due to RBI’s OMO buying.
- The corporate-government yield gap widened by 25 bps.
- Short-term yields moved above long-term ones, forming an inverted yield curve.
What next
Experts expect further OMOs. Other durable liquidity tools: CRR cut, lower incremental CRR, forex buy-sell swaps and long-term repo operations.
Exam angle
- OMO: RBI buys or sells government securities to manage liquidity.
- Terms: VRR, CRR, inverted yield curve.