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Citibank’s India Economist Samiran Chakraborty, offers his take on the Reserve Bank of India’s (RBI) consistent special OMO auctions and its impact on the yield curve.

Key Quotes:

“Purpose of Operation Twist is not just to address any short-term misalignments in the yield curve but it could become a more fundamental tool for improving monetary transmission by lowering the borrowing cost for the government and may be eventually for rest of the economy,”

“Yield to remain capped around 6.50%.“

“A caveat here is that the market participants expect more of “Operation Twist” at least in the run up to the budget, so any disappointment on that front may hurt the fixed income sentiment in spite of easy liquidity conditions.”

RBI is scheduled to conduct its third special OMO next week, where it will buy bonds maturing in 2024, 2026 and 2029 and sell 2020 maturity notes.