RBI to push Rs.12,000 crore into market to manage liquidity

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The Reserve Bank of India (RBI) announced on Tuesday, October 10, that it will hold an auction on October 11 to purchase government securities worth Rs.12,000 crore, thereby pumping money into the system to manage the liquidity situation. RBI took this decision in order to ease the tight liquidity situation as well as prep the market for the demand of funds in the festival season coming up.

RBI
The RBI has resorted to the Open Market Operations method to push Rs.12,000 crore into the market to control the tight liquidity situation.

As per the statement released by RBI, the government will purchase government bonds through the multi-price method during the October 11 auction. The results of the multi-security auction will be announced the same day.

The aggregate amount of the Open Market Operations to control the prevailing liquidity condition is planned to be Rs.12,000 crore. However, RBI can decide how many individual securities it will purchase and can choose to buy securities worth less than or more than Rs.12,000 crore too. Also, it can accept or reject, wholly or partially, any or all of the offers without stating the reason for the same.

According to the plan, the government will purchase government bonds with specific interest rates and maturity year as mentioned below:

Interest rate (per cent) Maturity year
8.27 2020
8.15 2022
7.35 2024
8.15 2026
7.61 2030

While the results will be announced on October 11, the payment for the purchased securities will be made to the successful participants on October 12 during banking hours.

Open Market Operations are tools used to pump in or drain out money from the market to maintain a stable liquidity situation in the system on a durable basis. In case there is excess liquidity, the RBI will sell securities to restrict the money in the market and in case there is less liquidity, it will buy securities in order to release more money into the system.

Source: Economic Times

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