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RBI’s OMO sale exceeds expectations, absorbing excess liquidity with higher bond yields

By Sohail Khan 18 September 2026, 6:29 am

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Business News›Markets›Bonds›RBI's OMO sale exceeds expectations, absorbing excess liquidity with higher bond yields

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RBI's OMO sale exceeds expectations, absorbing excess liquidity with higher bond yields
Synopsis

The Reserve Bank of India's open market operation sale received robust investor interest. This operation aimed to absorb surplus liquidity from the banking system. The central bank accepted bonds at yields higher than prevailing market rates. This move precedes a significant weekly bond auction scheduled for Friday. Further liquidity absorption measures are planned for the coming week.

RBI's OMO sale exceeds expectations, absorbing excess liquidity with higher bond yields<br>

Mumbai: The central bank's first open market operation (OMO) sale of the year saw a stronger-than-expected response, with market participants placing bids worth ₹66,590 crore against the notified amount of ₹50,000 crore. The Reserve Bank of India (RBI) accepted bonds at yields higher than prevailing market levels, seeking to suck out excess liquidity.

Higher yields suggest a premium demanded from the investors. The OMO comes ahead of ₹28,000 crore weekly bond auction scheduled Friday by the RBI.

ET Bureau

The 8.28% GS 2032 was the most in demand, with market participants bidding the highest at ₹19,700 crore, while the five-year 6.68% GS 2031 paper garnered bids of ₹7,970 crore.

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"The yields were slightly higher than prevailing market levels and expectations, but the OMO was well subscribed. Since the sale was fully subscribed, it did not lead to any significant negative reaction in yields," said Alok Singh, head of treasury at CSB Bank.

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For example, the yield of the five-year paper closed at 6.78% on Thursday, while the cut off yield in the OMO was 6.90%.

The 6.79% GS 2029 three-year paper was taken at a cutoff yield of 6.70%, while it closed at 6.66%.

The RBI is conducting OMOs to absorb surplus system liquidity and align the weighted average call rate (WACR) with the policy rate. Selling securities in the OMO is one of the measures the central bank uses to drain excess liquidity in the banking system.

Read more: Retail investors pull Rs 5,674 crore from stocks, invest Rs 12,618 crore into IPOs in July-August

Overall liquidity now stands at ₹7.37 lakh crore on September 16, while the next OMO sale of ₹25,000 crore will take place on September 21. The WACR is at 5.05%, and has been below the 5.25% policy repo rate since late July. The RBI will also conduct a 3-day variable rate reverse repo (VRRR) operation for ₹2.25 lakh crore on Friday.

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