RBI to conduct another 'operational twist' on Monday

The Reserve Bank of India (RBI) on Thursday said it will conduct another simultaneous purchase and sale of government securities under the Open Market Operations (OMO) for Rs 10,000 crore each, on Monday.

The decision was taken on "a review of the current liquidity and market situation and an assessment of the evolving financial conditions", RBI said.

This will be the second such operation conducted by the RBI within a week, after the one on December 23, which made an immediate impact by bringing down the 10-year bond yield by 15 basis points.

The operation, likened to the US Federal Reserve's "operational twist" which involved swapping short-term treasury securities for long-term government debts.

Brickwork Ratings had earlier said that RBI has taken the decision to contain the rising yields on the longer end of the yield curve by strategically arranging this debt-to-money market swap.

"The move will improve both liquidity and bond yields as it will suck out the government bonds of long duration (10 years) and pump in short duration (about 6 months) worth Rs 10,000 crore through special OMO," it said.

"More such swaps may follow as it might prevent steepening of the yield curve (which could be on account of expectations of higher fiscal deficit) even as it improves liquidity for the long-term investors and provides flexibility to Government of India in raising long-term resources for managing the fiscal deficit," Brickwork said.ians