MUMBAI, Nov 17: JP Morgan has stated that the Reserve Bank of India's open market operations (OMO) are likely to increase in the coming days. "Easy liquidity and increased demand for short term paper presented a good oppurtunity for Reserve Bank to clear its stock of treasury bills. RBI has almost finished its entire stock of treasury bills but continues to hold significant amount of long dated paper. With most of the borrowing programme now complete and RBI stil holding a significant portion of the issuances, OMO activity is only expected to increase and is also likely to be a critical determinent of liquidity and the interest rate trend," said JP Morgan's fortnighly money market report.The year so far has seen RBI off-loading more than Rs 12,500 crore of government bonds and around Rs 3,000 crore of treasury bills. The fortnight itself accounted for Rs 3,513 crore of government bonds (mainly 11.40 per cent 2000 security) and Rs 2,058 crore of treasury bills, the report said.
According to the report,liquidity is unlikely to be a concern in the next couple of fortnights till the advance tax outflows in second half of December. Call rates are expected to remain soft though there might be some temporary hardening on OMO outflows.
The report says that RBI has done a good job of taming interest rate volatility by effective use of the OMO window. However, RBI is incresingly being pushed into a tight corner. Busy season has already begun and going forward the RBI would probably show greater urgency to off-load its stock of government paper. While liquidity might not pose a concern the increased supply of paper is likely to have a hardening bias on interest rates, says the report.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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