RBI Opens the Liquidity Floodgates: ₹20,000 Crore OMO Auction Concluded

The Reserve Bank of India (RBI) held its second Open Market Operation (OMO) purchase auction for April 2025 on April 8, adding ₹20,000 crore to the banking system. This is under a larger ₹80,000 crore liquidity injection plan declared earlier this month.

Key Points:
Auction Details: The April 8 OMO purchase auction was the second tranche of a series of four auctions planned in April 2025. Every tranche entails the purchase of government securities with a value of ₹20,000 crore.

Settlement Date: Settlement of this auction will take place on April 9, 2025.

Objective: The RBI aims to address potential liquidity deficits in the banking system and ensure smooth financial market functioning as surplus liquidity begins to narrow.

Market Response: The auction received strong interest from market participants, reflecting robust demand for government securities. In the first tranche held on April 3, bids were four times the notified amount, signaling continued investor confidence.

Larger Plan: This sale is part of a wider plan by the RBI to pump in ₹80,000 crore of liquidity in the form of four OMO tranches during April (April 3, 8, 22, and 29). This is after a large ₹1 lakh crore liquidity infusion in March via OMOs.

Effect on Bond Yields: The decision and implementation of OMOs have resulted in a fall in government bond yields. For example, the 10-year G-Sec yield benchmark dipped to a three-year low of 6.48% after initial announcements.

Context of Economics: RBI's timely intervention comes as there are contradictory signals of recovery in the economy, inflation pressure, and worldwide market volatility. Liquidity management continues to be crucial in maintaining financial stability.

The subsequent OMO purchase auction would be held on April 22, and its effect on market liquidity and bonds is being tracked closely by the market players. 

Sources:
Economic Times, The Hindu BusinessLine, Bajaj Broking, CNBC TV18, Business Standard