The Reserve Bank of India (RBI) has announced that it will pump in Rs.12,500 crore worth of liquidity into the system by purchasing government securities through open market operations (OMOs). This move is aimed at easing the liquidity crunch in the economy. RBI announced that the auction will happen on Thursday and the results will be announced on the same day.
Eligible participants who are willing to sell their government bonds can submit their bids on E-Kuber, RBI’s core banking solution software, on February 21 (Thursday). RBI will evaluate the offers and announce the result of the auction on the same day. Payments for all successful bids will be made on the next day.
The statement released by RBI noted that the decision to purchase government securities for an amount of Rs.125 million is based on careful assessment of the country’s prevailing liquidity conditions. Moreover, the country’s durable liquidity needs of the future are also taken into consideration for this decision.
It is quite common for the RBI to use OMOs to inject or withdraw funds from the system. This is typically based on the prevailing liquidity conditions in the economy. If the economy is facing a liquidity crunch, RBI will inject money into the system by purchasing government securities. On the other hand, if there is surplus liquidity, RBI will withdraw the excess money through the sale of government bonds.
On Monday, RBI announced an interim dividend of Rs.28,000 crore for the government to overcome its tight liquidity condition. This is in addition to the Rs.40,000 crore dividend provided earlier to the government. This additional dividend is likely to help the government maintain its fiscal deficit at 3.4%. In its interim budget released recently, the government has estimated a surplus of Rs.74,140 crore from the RBI, nationalised banks, and other major financial institutions in the country.
Source: Economic Times