Between January and now, there were a few simultaneous OMO announcements, but the central bank clearly stated the nature of the OMOs. In those operations, the central bank bought long term bonds and sold an equivalent amount of short-term treasury papers to manage yields.
Such simulatenous OMOs did not disturb the liquidity profile of the system as the central bank aimed to buy and sell an equivalent amount of securities through such announced OMOs.
“With liquidity being abundant, the only guiding factor for any such coveted or open intervention could be to reign in volatility of yields and anchor benchmark yields to an acceptable slope over overnight," said R.K. Gurumurthy, head of treasury at Laxmi Vilas Bank.
To curb the banking sector liquidity, the RBI recently conducted an 84-day cash management bill (CMB) of Rs 80,000 crore. Yet, banks
parked surplus liquidity of Rs 6.58 trillion with the RBI on Thursday.
“Why the RBI would like to do the OMOs unannounced could be many. One could be that system liquidity surplus is highest ever, even higher than the post-demonetisation glut. In this backdrop, instead of being seen as pumping in more liquidity, they are doing in from the background. RBI will continue to support the market - 'whatever it takes'," said Joydeep Sen, consultant, fixed income, Philip Capital.
Bond dealers also say that the central bank will eventually have to announced an OMO calendar, once the banking system liquidity start normalising again, but any OMO announcement would also have to be neutralised through instruments such as CMBs that would suck out the excess liquidity caused by the OMO.
It was reported that at the time of announcing the extra borrowing, the government had told the RBI to keep the borrowing cost low. In a recent webinar, former RBI governor D. Subbarao also said that there could be more borrowing in the current fiscal, as necessitated to fight an economic slowdown, but the government should also have its own set limit of how much more it can borrow.
“OMOs will be announced if we see yields spiking under normal conditions. The current strategy could be to subdue and cap yields and when economic activity normalizes and there is clarity on real net borrowing, the strategy will be to actively drive yields lower to sustain appetite,” Gurumurthy said.
“Whether it will be official OMO, it depends - if yields move up, they may do it. By the way, RBI has always been a major participant in the secondary G-Sec market, but it does not get highlighted as much," said Sen.