India central bank to conduct open-market bond sales to absorb durable liquidity, sources say

MUMBAI, Oct 20 - India's central bank will conduct open market sales of bonds once government spending picks up and there is an improvement in the durable liquidity surplus, two sources aware of the development told Reuters on Friday.

"The RBI is going to look through frictional changes in liquidity and conduct OMO sales only when there is a durable surplus," the second person said."OMOs will be purely need based." Frictional changes refer to short-term swings in banking liquidity while longer-term withdrawal or addition of cash impact durable liquidity.

Banking liquidity is expected to move back to surplus by early November on government expenditure and as bonds worth around 540 billion rupees mature on Nov. 2.

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