RBI announces open market purchase, sale of G-Secs to squeeze out liquidity

In an unexpected move, RBI has announced that it will not only buy Rs 15,000 crore of bonds under the Government Securities Acquisition Programme (G-SAP), it will also simultaneously sell an equal amount of bonds under its open market operations on Thursday, September 23. This is the first major effort made by RBI to squeeze out liquidity.

While the bond purchase of Rs 15,000 crore was on expected lines but the surprise is that they are simultaneously selling an equal amount. They are selling bonds maturing next year, so less than one year, and there is plenty of demand for short-term bonds, so it can get sold. At the moment, you should not expect yields to rise, especially, because today the global environment is one of the yields falling but it is clearly a signal that the Reserve Bank of India is getting uncomfortable with the level of liquidity. The liquidity in the system is Rs 11.5 lakh crore.