RBI Absorbs Entire Rs 50,000 Crore in First Tranche of OMO Bond Sales

The Reserve Bank of India (RBI) on September 17 accepted bids for the entire notified amount of Rs 50,000 crore in its Open Market Operation (OMO) sale of government securities. The successful auction marks the execution of the first and largest tranche of the central bank's broader Rs 1 lakh crore bond sale program aimed at draining durable surplus rupee liquidity.

The OMO auction drew bids across six government securities, with the cut-off yields settling between 6.6007% and 7.0090%. The central bank accepted the highest allocation of Rs 18,840 crore in the 8.28% GS 2032 paper at a cut-off yield of 7.0090%, followed by Rs 12,645 crore in the 5.77% GS 2030 paper.

Liquidity Glut Driven by Foreign Inflows

The banking system has been inundated with liquidity following record inflows under special foreign currency mobilisation programs. Banking-system liquidity recently recorded a surplus of over Rs 10.4 lakh crore, compared to an average of Rs 3.67 lakh crore in August.

The influx was accelerated by Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, which mobilised USD 127.23 billion by late August. Total inflows—including Overseas Foreign Currency Borrowings and External Commercial Borrowings—reached USD 136.38 billion. Subsequent foreign exchange swap arrangements between commercial banks and the central bank injected substantial rupee balances into the domestic system.

Consequently, the Weighted Average Call Rate (WACR)—the RBI's operating target for monetary policy transmission—has repeatedly traded near the Standing Deposit Facility (SDF) rate around 5.02%, drifting significantly below the 5.25% repo rate.

Auction Structure and Remaining Tranches

To realign money market rates with policy benchmarks without altering statutory mandates, the RBI initiated a phased OMO schedule alongside daily Variable Rate Reverse Repo (VRRR) operations:

• First Tranche: Rs 50,000 crore conducted on September 17 (fully accepted).
• Second Tranche: Rs 25,000 crore scheduled for September 21.
• Third Tranche: Rs 25,000 crore scheduled for September 28.

The securities offered across the multi-security, multiple-price auction format include 7.59% GS 2029, 6.79% GS 2029, 7.61% GS 2030, 5.77% GS 2030, 6.68% GS 2031, and 8.28% GS 2032.

Market Reaction and Yield Impact

Market participants noted that full acceptance of the Rs 50,000 crore offering indicates the central bank's resolve to extract long-term liquidity directly, rather than relying exclusively on shorter-tenor reverse repos where banks had shown mixed interest.

The supply injection has hardened sovereign yields across the curve. The benchmark 10-year government bond yield recently crossed the 7.00% mark to settle around 7.01%, with treasury dealers projecting yields to test the 7.05% to 7.15% corridor as the market absorbs the remaining Rs 50,000 crore of supply in the coming sessions. For fixed-income investors, the ongoing OMO sales provide attractive entry yields in intermediate-tenor government paper while keeping short-term money market rates firm.

Tags: Reserve Bank of India Indian Bond Market Government Securities Banking Liquidity FCNR Deposits