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The Reserve Bank of India (RBI) on December 18 said it would inject Rs 50,000 crore into the system in January 2019 through a purchase of government securities.

To discuss the same, CNBC-TV18 spoke to MS Gopikrishnan, head macro trading, SA and financial markets at Standard Chartered Bank and Ananth Narayan, professor of SPJIMR.

“I think the size seems to be on the larger side. Markets were anticipating OMOs till March but the number was much smaller. I would probably put something like Rs 20,000 crore per month from January to March. Against that, we are seeing roughly Rs 50,000 crore per month which seems to be on the higher side. Markets will be surprised on the positive side and I think that will definitely have an impact on the yields in the morning. Just not immediately, in the run up to March, we will probably looking at yields falling further. Oil falling by 7-8 percent is definitely going to add to the positive sentiments to bond markets,” said Gopikrishnan on December 19.

Talking about how the OMO could provide liquidity support to the bond markets, Narayan said, “Overall for this financial year, assuming that they continue with Rs 50,000 crore from January to March, RBI would have effectively purchased Rs 3.36 lakh crore of government securities, which is a staggering 80 percent of the net issuance budgeted for this year by the central government. That is a huge amount of monetisation. It is a huge amount of liquidity support. Clearly, bond markets will celebrate Christmas and Diwali all put together for now. That trend will continue. It does raise larger questions about the medium-term but who bothers about the medium-term, we will worry about it later on."

“Normally when you have fiscal slippages and you have monetary easing to support that kind of fiscal slippages, you would be concerned about inflation, you would be concerned about financial stability but clearly with consumer price index (CPI) prints surprising on the downside, 2.3 percent is a really low number and with oil prices coming off, those fears are relegated for the time being. The nature of our fiscal is not looking good. While we celebrate and while we feel happy about what is going on right now, farm loan waivers as it is even before these farm loan waivers started, we were having sharp reduction in tax collections, we were looking at a one percent slippage before accounting jugglery comes into play and plus now we have a competitive populism being the order of the day. It doesn’t augur well for the quality of the fiscal deficit,”