Liquidity released on account of purchase of Government Securities (G-Secs/GS) aggregating ₹35,000 crore by the Reserve Bank of India (RBI) on Thursday may encourage banks to subscribe to G-Secs aggregating ₹32,000 crore at Friday’s scheduled auction.
Market participants offered to sell seven G-Secs aggregating ₹1,21,696 crore against the notified amount of ₹35,000 crore RBI wanted to buy under the second tranche of its G-sec Acquisition Programme (G-SAP 1.0).
RBI accepted offers for six G-Secs aggregating the notified amount. It rejected all the offers for 7.95 per cent GS 2032.
The Central bank purchased the benchmark 5.85 per cent GS2030 under G-SAP at ₹99.26 (yield: 5.9526 per cent) against the previous close of ₹99.10 (5.9749 per cent). Bond prices and yields are inversely related and move in opposite directions.
Stable and orderly evolution
Under G-SAP, the RBI commits upfront to a specific amount of open market purchases of G-Secs with a view to enabling a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.
Meanwhile, the central bank decided to conduct a 14-day Variable Rate Reverse Repo auction for a notified amount of ₹2-lakh crore under its Liquidity Adjustment Facility on May 21.
The aforementioned auction is conducted by RBI to suck out excess liquidity from the banking system.