Ample liquidity triggers fear of liquidity tightening steps by RBI

The ample liquidity in the system has resulted in overnight rates falling below the repo rate; as a result there are concerns in the market that the Reserve Bank of India (RBI) may soon announce one more open market operation (OMO) sale of bonds to mop up excess liquidity Stock Market Trading Tips

The weighted average call money rate stood at 6.84 per cent on Tuesday compared with 7.08 per cent on Monday. The rates were closer to 5.79 per cent which was the weighted average rate on July 4.

The weighted average collateralised borrowing and lending obligation (CBLO) rate stood at 7.21 per cent on Tuesday compared with 7.19 per cent on Monday. The repo rate or the rate at which banks borrow from the central bank stands at 7.25 per cent Himanshu Tiwari Astrologer

“Liquidity is ample due to which the fear is always there in the bond market that RBI may again announce an OMO sale. If that happens then yields will again spike up. The demand for bonds is anyway very low,” said Debendra Kumar Dash, assistant vice president (money market), DCB Bank.

An OMO sale up to Rs 10,000 crore was announced earlier this month due to which the yields had spiked up sharply. The OMO sale was announced on July 10 and on that day the yield on the 10-year benchmark bond had ended at 7.96 per cent while after the OMO sale announcement on July 13, which was the next trading day for bonds, the yield had risen to end at 8.04 per cent Financial Astrology

“The liquidity situation is ample for the simple reason that there is not much of credit demand and RBI has been buying a lot of dollars from the market. I think another OMO sale by RBI is due and it can be announced even this week,” said Anindya Banerjee, currency analyst, Kotak Securities.

The yield on the 10-year benchmark bond ended stable at 8.02 per cent on Tuesday. In the last OMO sale, RBI had sucked out liquidity worth Rs 8,270 crore.

“We do expect RBI to go for more liquidity sucking measures, including more OMO sale, and reverse repos. The excess liquidity in the system will see corrections in the second half of the fiscal when the busy season starts. CRR (cash reserve ratio) is an extreme measure which will result in substantial increase in the costs for  banks,” said R Sivakumar, head of fixed income at Axis Mutual Fund Indian stock market astrology prediction