The Reserve Bank of India (RBI) is planning to inject another Rs.12,000 crore into the system on November 15 through the purchase of government securities. RBI stated that this security purchase will help ease the crunch arising out of the series of defaults caused by the IL&FS companies. It is worth noting that RBI has done similar liquidity injections in the past to ease the liquidity requirements of the company.
In the statement, RBI revealed that the purchase of government securities is based on the prevailing conditions and future requirements of the country. It also noted that the purchase will be conducted through Open Market Operations (OMO) for a value of Rs.12,000 crore.
Participants who are eligible to take part in the offering can submit their offers to RBI through the Core Banking Solution (E-Kuber) System. Once the offers are submitted, RBI will announce the auction results on the same day to all participants. For all accepted offers, RBI will make the payment on the following day.
Under this operation, government securities maturing in 2021, 2022, 2024, 2027, and 2033 and bearing different interest rates will be bought by RBI. The statement noted that RBI will have the final say when it comes to deciding the quantum of purchase. Also, RBI has the right to accept or reject any offers without providing a reason.
In the past, RBI has stated that there will be system liquidity deficit in the second half of the current fiscal year. During this situation, the liquidity situation that prevails at the moment will determine the choice of instruments when it comes to liquidity management.
RBI’s decision to purchase or sell securities is based on the country’s existing liquidity conditions and future needs. If there is excess liquidity in the system, RBI will sell securities in the market. If there is a liquidity crunch, the reserve bank will resort to buying securities in the open market in a bid to release money into the system.
Source: Moneycontrol, Economic Times