Government Securities Worth Rs.2,069 Crores Bought Back By The RBI

The RBI managed to repurchase only Rs.2,069 crore worth of government bonds out of the notified amount of Rs 60,000 crore due to the reluctance of the banks to sell the securities at a loss. Therefore, The central bank’s second attempt to infuse liquidity saw limited success, with banks purchasing the offered securities at higher prices during the auction.

Securities Offered to RBI

The securities offered for repurchase by banks to the RBI include 6.18% GS 2024, 9.15% GS 2024, and 6.89% GS 2025, with maturity dates set for November 4, November 14, and January 16, respectively. Specifically, The central bank received 24 offers for the 6.18% GS securities, totalling Rs 26,877.161 crore. However, it opted to accept only six offers, amounting to Rs 552.999 crore, at a cut-off price of Rs 99.61. Similarly, for the 9.15% GS securities, the RBI received 12 offers, totalling Rs 6,479.791 crore, ultimately accepting two offers worth Rs 1,513 crore at a cut-off price of Rs 100.98. These figures highlight the cautious stance adopted by banks, resulting in the restrained success of the RBI’s liquidity enhancement endeavours.

Why RBI is not accepting the demands of the Banks

The central bank could have opted to accept the higher prices demanded by banks to inject liquidity into the banking system. However, such acceptance from the central bank would inevitably have led to a notable reduction in yields for these securities. This pivotal decision underscores the RBI’s discomfort with the prospect of yields prematurely reflecting monetary policy actions. Consequently, the majority of bids were rejected, showing the central bank’s resolve to uphold a certain level of yield integrity.

This case emphasises the equilibrium, the RBI aims to maintain between infusing liquidity into the system and safeguarding the efficacy of its monetary policy measures. By opposing the pressure to accept lower yields, the RBI thus also assures its commitment to balanced financial management and policy coherence, thereby highlighting its proactive approach to navigating the complexities of the financial landscape.

Conclusion: This limited success of the Central Bank in the buyback of the government bonds, amid the bank’s reluctance to sell at a loss, highlights the delicate balance between injecting liquidity and yield management. By rejecting most of the bids to maintain yield integrity, the central bank prioritizes long-term policy consistency. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.