RBI Announces Rs 20,000 Crore Liquidity Operations (Download PDF)

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RBI Announces ₹ 20,000 Crore Liquidity Operations

  • The RBI announced that it will conduct purchase and sale of government securities worth ₹ 20,000 crore as part of Open Market Operations (OMOs) .
  • The OMO will be conducted in two tranches on August 27 and September 3.
  • The two tranches will be worth ₹ 10,000 crore each on multi security auction using multiple price method.
RBI Announces ₹ 20,000 Crore

Overview

  • Eligible participants need to submit their bids/offers in electronic format on Reserve Bank of India Core Banking Solution (E-Kuber) system.
  • The results of the auction will be announced on the same day.
  • The RBI will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure the orderly functioning of financial markets.
  • Previously, RBI conducted OMO in October 2019 worth ₹ 10,000 crore for maintaining liquidity.
  • Such bond buys and sell operations are a way of softening long-term yields that help the government to borrow cheap.
  • They also give the central bank enough long-term bonds to support its liquidity operations.
  • The central bank has to offer bonds to banks keeping their surplus liquidity with the central bank and for that, it must have enough bonds.
  • Once the bonds mature in RBI holding, the central bank may fall short of such bonds.
  • The buy and sell OMO operations protect the central bank from such an option.
  • The RBI initiated two special market operations since December 2019 and February 2020
    • OT – involves buying of GSECs with long term maturities (10 and 5 years) and selling of shorter term GSECs of original/residual maturities of one and three years.
    • LTRO- are repurchase agreements collateralized by government securities, by which the central bank lends money to the banks for one to three years at the policy repo rate.
  • They were designed to ensure comfortable liquidity in the financial system and to facilitate monetary policy transmission.

- Published/Last Modified on: January 21, 2021

Science/Technology, Economy

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