The Reserve Bank of India will resume bond purchases after a span of five months, helping offset the impact of expected outflows as corporates start paying taxes ahead of the December 15 deadline. After market hours on Thursday, the RBI said it will buy up to 120 billion rupees of federal government bonds on December 4 through OMO. "The OMO will help create replacement demand for government securities besides alleviating the cash squeeze in the system," said Naveen Sharma, Fund Manager, Bajaj Allianz Life Insurance.
The benchmark 10-year bond yield ended 3 basis points (bps) lower at 8.18 percent. It fell to 8.16 percent in session, a level last seen October 30. Bond yields have fallen 5 basis points during the week. Sharma expects bond yields to be in the 8.10 percent to 8.20 percent range in the near term and if RBI continues with further OMO, the yield will drop to 8.00 percent levels.
Investment Bank Nomura expects 800 billion rupees of OMOs in the fiscal second half. The 7-15 year part of the bond curve will likely outperform the rest of the curve and continue to expect OMOs to be concentrated in this part of the curve. Banks' borrowing from the repo window was at 548 billion rupees in the first liquidity auction on Friday. Reporting fortnights have two repo windows.
Banks' borrowing remained above the 1 trillion rupee mark for eleven straight sessions till Thursday. India's short-end 1-year OIS rate settled down 1 bp at 7.72 percent, after touching a low of 7.70 pct, a level last seen on October 30, and the benchmark 5-year OIS rate was lower 2 basis points at 7.12 percent, a level seen on November 16.
The economy grew 5.3 percent from a year earlier in the July-September period, provisional gross domestic product (GDP) data showed on Friday, below the 5.5 percent posted for the three months ending in June. The lower-than-expected growth data has underscored the urgency of politically difficult reform measures to spur a revival. The weak GDP data will also pile pressure for some monetary easing at the next central bank meeting on December 18, traders said.