The Reserve Bank of India (RBI) conducted net purchases of government bonds in the secondary market last week, marking its first such activity in over three years, according to data released on January 24 and reported by Reuters.

The RBI purchased bonds totalling INR101.75bn ($1.18bn) in the week ended January 17, with transactions concentrated over three sessions: INR25.70bn on January 15, INR44.80bn on January 16, and INR31.25bn on January 17. Settlement of these screen-based trades occurs a day after execution.

"This is definitely a big positive," said a senior treasury official, adding that the quantum of purchases clearly indicates the intent and could be a signal for the market that the RBI is looking to proactively manage banking system liquidity, Reuters noted.

The central bank uses bond operations to regulate liquidity and align interest rates with its monetary policy objectives. However, these actions also influence bond yields. The recent purchases coincided with the start of daily overnight variable-rate repo auctions, initiated last week.

India’s banking liquidity has remained in deficit since mid-December, with shortfalls exceeding INR2 trillion daily during the week ending January 17. Data from the clearing house showed that "others"—a category including the RBI, insurers, and pension funds—net purchased approximately INR200bn worth of bonds in the same period.

During the July-September quarter, the central bank had net sold over INR240bn of bonds as part of its tightening stance. Market participants expect similar interventions this week, with further clarity anticipated when data is released on January 31.