The RBI first OMO sale received bids worth Rs 66,590 crore against the notified Rs 50,000 crore on Thursday, reflecting strong demand for government securities even as the central bank accepted bonds at yields above prevailing market levels.

Key Highlights

• RBI received Rs 66,590 crore in bids against Rs 50,000 crore during its first OMO sale of 2026.
• The central bank will conduct a three-day Rs 2.25 lakh crore VRRR auction on September 18.

The OMO sale is part of the RBI's efforts in liquidity management, with a Rs 2.25 lakh crore three-day (Variable Rate Reverse Repo) VRRR auction on Friday, September 18. VRRR operation will be conducted from 9:30 am to 10 am with a reversal on 21st September.

RBI OMO Sale Gets Rs 66,590 Crore Bids Against Rs 50,000 Crore

Sellers made bids for Rs 66,590 crore and the RBI accepted the entire amount of Rs 50,000 crore in the first OMO sale this year. A total of six government securities, from 2029 to 2032, were covered under VRRR auction.

The highest demand was seen for the 8.28% GS 2032 which got Rs 19,700 crore in bidding, out of which Rs 18,840 crore worth of bids were accepted. The 5.77% GS 2030 received Rs 16,685 crore in bids, while Rs 12,645 crore was accepted.

Why Did RBI Accept Bonds at Higher Yields?

For some securities, the cut-off yields in the OMO were higher than the prevailing market yields, meaning investors were looking for higher yields to be involved in the OMO.

For example, the five-year paper on Thursday ended at 6.78% since the OMO cut-off yield was 6.90%. Similarly, the 6.79% GS 2029 paper closed at 6.66%, compared with an OMO cut-off yield of 6.70%.

Alok Singh, head of treasury at CSB Bank, said the yields were slightly higher than prevailing market levels and expectations, but the OMO was well subscribed. He added that the full subscription meant there was no significant negative reaction in yields.

Why Is RBI Conducting OMO Sales?

Open Market Operations (OMOs) refers to the sale and purchase of government securities by the RBI in the market. The central bank is engaging in a reverse transaction and is buying securities to inject durable liquidity to the banking system in the current operation.

The RBI is using the OMO programme to help bring the weighted average call rate (WACR) closer to its policy rate. Too high a level of liquidity can lead to the failure of the policy rates to rise from the policy rate and make monetary policies ineffective.

The net liquidity surplus of the banking system was Rs 7.37 lakh crore as of September 16. The WACR was at 5.05%, while the policy repo rate of RBI was at 5.25%.

RBI to Conduct Rs 2.25 Lakh Crore VRRR Auction

The RBI will conduct a three-day VRRR auction worth Rs 2.25 lakh crore on Friday, September 18. The auction will be conducted under the Liquidity Adjustment Facility, with the funds scheduled to return to banks on September 21.

Unlike an OMO sale, which involves the outright sale of government securities and therefore has a more durable liquidity impact, a VRRR operation allows banks to temporarily park surplus funds with the RBI.

The latest VRRR operation is another tool being used by the central bank to manage surplus liquidity and keep money-market rates aligned with its policy stance.

Also Read: RBI Special Swap Facility Mobilised $136.38 Bn, FCNR(B) Deposits Lead

What Is the Difference Between OMO and VRRR?

What Is RBI’s Next OMO Sale?

There is a plan by the RBI to sell more OMOs following Thursday's Rs 50,000 crore auction. The September OMO programme gets Rs 25,000 crore on September 21 and Rs 25,000 crore again on September 28.

The response to the upcoming VRRR auction will depend partly on prevailing government bond yields, investor demand and the level of banking liquidity surplus.

What Does RBI’s Liquidity Absorption Mean for Bond Markets?

The combination of OMO sales and VRRR operations indicates that the RBI is actively managing excess liquidity rather than relying on a single instrument. Strong demand at Thursday’s OMO suggests that investors were willing to participate even at higher yields, although the cut-off levels will remain important for subsequent bond-market trading.

With another Rs 25,000 crore OMO sale scheduled for September 21 and the three-day Rs 2.25 lakh crore VRRR operation on Friday, liquidity management is likely to remain a key factor for money-market and government bond investors in the near term.