RBI to Buy Bond: The plan of the Reserve Bank of India (RBI) is to buy 3 lakh crore ($ 4100 million) bonds in the next financial year. This will be done to support the government’s borrowing program. According to Bloomberg, a government source has given information about this. At the same time this month, there is news of RBI providing loans of Rs 20,000 crore to the government by purchasing bonds from the Government of India from the Open Market Operations (OMO) on February 10. After such news in the market, the 10-year bond yield has come down and it has come down from 6.071 per cent to 6.031 per cent. Explain that the government had announced its borrowing plan last year, after which the yield of 10-year bonds had increased.
Focus on liquidity support
Explain that earlier on Friday, the RBI did not make any changes in interest rates while announcing the monetary policy. The repo rate was retained at 4 percent. At the same time, RBI’s attitude towards liquidity remained soft. RBI said that whenever required, adequate liquidity measures will be taken in the system. Apart from this, RBI also announced that small investors will now be able to invest directly in government bonds through RBI. For this, they have to open an account with RBI. Experts are considering all these declarations of RBI as positive for the bond market. RBI has also taken measures like LTRO.
Good news for bond market
Expert says that liquidity measures are an attempt to keep the bond market stable. Liquidity measures taken by the government are positive for the bond market. The benefit of this is also expected to reach debt mutual funds. AK Nigam, director of BNP Fincap, says that the government is trying to maintain the bond yield at 6 percent or less. Certainly, these measures of RBI will make the bond market stable. The entry into the system will help in maintaining the funding channel operation and will also help in reducing financial clutter. Equity will also benefit with debt market.
He says that such investors should invest in government bonds who are looking for alternatives to a traditional investment like FD. Looking forward to better returns in government bonds. At the same time, when talking about debt-cutting, mid to long durations will be the right choice. Banking and PSU funds are also attractive now. However, do check the quality of the paper before investing.