RBI silently buying bonds from the market

            RBI silently buying bonds from the market

                                   The Reserve Bank Of India is buying bonds from the secondary market on a regular basis at the time when the banking system is flushed with liquidity. Banks parked Rs 3.05 trillion of excess money with the central bank on Tuesday, which are highest since the demonetisation days .In order to support this mammoth liquidity operations,the central bank need bonds. these bonds are given to banks as collateral against the cash. About Rs 9.9 trillion was the RBI's bond holding at the end of June this year. This is because the financial year 2018-19 (FY 19), the RBI did massive bond purchase of up to Rs 3 trillion to infuse liquidity into the banking system.

                                       Bond market experts say that as banks seem to be keeping the entire money back with the RBI because of a lack of opportunity in deploying the funds for credit, the RBI's bond reserve may have been stretched. Till November 22, the central bank bought Rs  4300 crore of bonds. In October, it had only bought Rs 35 crore worth of bonds, while in September, the bonds purchase was to the tune of Rs 755 crore.

                                      Buying bonds at a small scale doesn't matter to the market,but it can for the central bank while considering that the bond purchase by the central bank run in trillions. The central bank buys bonds unannounced to replenish its own stock, or to manage yields in its portfolio, or there could be redemption of bonds that the central bank held previously. It could be filling its kitty with the bonds already redeemed, or scheduled for it, says by the debt market experts.

                       

                                       RBI says that illiquid bonds that bought in bulk, could boost the prices of bonds. Nobody knows what bonds the RBI holds, and in which securities the transactions have happened. The RBI does not publish details of those purchases, unlike when it announces secondary market bond purchases through official communique.