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In FY25, RBI purchased bonds worth ₹2.6 lakh crore, while this fiscal year, it has purchased ₹1.2 lakh crore of bonds and plans to buy another ₹1.3 lakh crore this May.
Institutions expect cumulative purchases via OMO of at least ₹4 lakh crore in FY26 would be needed for policy rate transmission to take effect.
Investors outside the US turned into net sellers of corporate debt in the first half of April, after US President Donald Trump announced the highest tariffs on foreign countries in more than a century. That’s according to data tracking direct flows compiled by Goldman Sachs Group Inc strategists including Lotfi Karoui.
This would imply that bond purchases by RBI could surpass the ₹6.4 lakh crore seen during the covid period between FY20 and FY23.
AgenciesRBI governor Sanjay Malhotra said in his post policy press conference that measures would be taken to take system liquidity to 1% on NDTL which analyst say will be required for transmission of policy rate to lending rate to take place.
With the current liquidity infusion by RBI, system liquidity turned positive from late March and the daily average surplus in April stood at ₹1.5 lakh crore, or 0.6% of NDTL, according to a report by IDFC First Bank. A large section of bank loan borrowers are yet to see the benefit from the RBIs two consecutive policy rate cuts. Data released by the RBI on Wednesday showed that one-year median marginal cost of fund-based lending rate (MCLR) remained unchanged at 9% in April despite a 50 basis point rate cut since February this year. The repo rate now stands at 6%.”The front-loaded infusion of liquidity makes sense from a transmission perspective… The change in liquidity management was much needed to ensure that transmission of the rate cuts takes place. Moreover, the job is not done, and RBI will need to infuse more liquidity in FY26,” said Gaura Sen Gupta, chief economist at IDFC First Bank.
Nathan Sribalasundaram, Asia EM rates strategist at Nomura forecasts a ₹3 lakh crore of liquidity infusion for the full year.
“They will also likely follow up with some FX swaps and lengthen out the short forwards book, but this is going to be more demand dependent,” he said.
IDFC First Bank however expects the RBI to infuse a total of ₹4 lakh crore via OMOs during this fiscal year.
But according to Gupta, “RBI may not want to make the forward book more negative by adding net dollar short positions. Instead, they may allow some of the short-end swaps to mature and extend the maturity of the rest.”
The net-short dollar book stood at $64.2 billion in March, after hitting a record $88.8 billion the previous month, latest RBI data showed.
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https://economictimes.indiatimes.com/markets/bonds/rbis-buying-more-bonds-than-it-did-during-pandemic/articleshow/120807147.cms
