The RBI is currently preparing to pump additional money into the banking system. As a result, after nine years, the Reserve Bank has sold government bonds worth approximately ₹50 crore. This figure represents only the first phase.
RBI sold bonds worth Rs 50,000 crore
The Reserve Bank of India is currently selling bonds under Open Market Operations (OMOs) to remove excess cash or liquidity from the banking system. The first phase of this operation took place today, September 17th. In its first phase, the central bank sold government bonds worth approximately ₹50,000 crore. Furthermore, the RBI may do this again so that if interest rates are increased in the future, the impact will be quickly reflected in bank loan interest rates.
Government bonds sold after 9 years
RBI recently sold government bonds in the open market for the first time after nearly 9 years. The central bank sold bonds worth Rs 5,000 crore through an auction and withdrew the same amount from the banking system. This auction saw good demand from investors. RBI sold government bonds maturing between the financial years 2029 and 2032. The interest rate (yield) at which they were sold was slightly higher than market expectations. RBI is also planning to sell bonds worth Rs 2,500 crore each in the next two weeks.
Why is banks' money being withdrawn?
Excess cash, or surplus liquidity, in the banking system reached a record ₹11.6 lakh crore on September 6th. However, it has since declined by nearly a third, now standing at approximately ₹7.4 lakh crore. This indicates excess cash held by banks. When banks have sufficient funds, they have less need to borrow from the RBI. This can cause the impact of changes in the RBI's policy interest rate to take time to reach bank loan interest rates. For this reason, the RBI is gradually trying to remove excess cash from the system.
Interest rates may rise in October.
Markets are expecting a 0.25 percent (25 basis points) increase in the repo rate during the RBI's October meeting. The central bank wants the interest rate hike decision to be effectively passed on to banks' lending rates.
ICICI Securities Primary Dealership believes the RBI could pump around ₹2 trillion of liquidity into the system through bond sales. Furthermore, a series of interest rate hikes could begin in October.
