Government securities on Thursday shot up after the Reserve Bank of India (RBI) said it would buy back another Rs 10,000 crore worth of bonds under open market operations (purchase of government securities) as also slowdown in economic growth in the second quarter of 2011-12 which gives the apex bank room to consider easing monetary policy. As the rupee has depreciated by 5.3 per cent since November 1,2011 and has remained above the 52-mark since November 21,the RBI has intervened occasionally in the forex market. This means the RBI has sold dollars and mopped an equivalent amount in rupees,leading to further tightness in the liquidity. The 8.79 per cent government security maturing in 2021 flared up to Rs 100.33 from Rs 99.76,while its yield tumbled to 8.74 per cent from 8.83 per cent yesterday. The 9.15 per cent government security maturing in 2024 also spurted to Rs 102.34 from Rs 101.55 previously,while its yield plunged to 8.84 per cent from 8.94 per cent. The 7.83 per cent government security maturing in 2018 rose to Rs 95.7475 from Rs 95.27,while its yield dipped to 8.71 per cent from 8.81 per cent. The RBI had announced that it will conduct open market operations on December 1,2011. This is the second such announcement by the RBI to conduct OMO. It purchased government securities on November 24,2011,worth Rs 9,435 crore. This is in line with the market expectation that the RBI would announce more purchases of government securities to alleviate the stress in inter-bank liquidity. We reiterate that we would not read the announcement of OMOs as an easing move considering the current inflation trend. OMOs aim to prevent unintended tightening in domestic liquidity and a further rise in short-term rates, said an analyst with Morgan Stanley.
