RBI to conduct Operation Twist for Rs 10,000 cr

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MUMBAI: The Reserve Bank of India will aim to buy long term bonds worth Rs 10,000 crore and sell an equivalent amount of shorter duration papers in what is known as Operation Twist (OT). This should help cap rising benchmark yields, which have remained elevated on oversupply concerns.

The central bank will conduct the latest OT auction on October 1. It will buy three sets of securities maturing between 2025 and 2029. The latest announcement came on a day the RBI did not accept any bid in an open market operation (OMO), where it aimed to buy Rs 10,000 crore worth of bonds from the market.

This was the first time in the financial year that the central bank did not accept OMO bids reflecting that bidders demanded higher yields the central bank was unwilling to give.

“Traders are now flummoxed about the RBI’s strategy to check rising yields,” said Naveen Singh, head of trading at ICICI Securities PD. “We may see subdued response to the Friday weekly auction. It would be interesting to see how yields react,” he said.

For Rs 10,000 crore, RBI received bids for Rs 66,473 crore involving three sets of sovereign securities but rejected all.

The RBI has been conducting OTs, first used by the US Federal Reserve, in the past six months. The local central bank has conducted nearly half a dozen such operations.

The benchmark yield was a tad lower at 5.99 percent Thursday. The gauge surpassed the psychological 6 percent mark quite a few times since the last monetary policy in August.

Meanwhile, the rupee lost 0.44 percent against the dollar closing at 73.90 Thursday, mirroring the weakness in other emerging market currencies.

“The dollar strength Thursday weighed on all emerging market currencies including the rupee,” said Kunal Sodhani, AVP – global trading centre at Shinhan Bank (India). “Investors have already digested the Fed dovish stance. Now you need some different trigger to extend further dollar weakness, which seems to be missing.”

“This coupled with the Euro zone’s gloomy economic outlook prompted investors to seek the safety of the dollar,” he said.

Europe is grappling with a second wave of Corona infections triggering fresh lockdown restrictions.



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