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The Reserve Bank of India issued a statement, stating that it will ensure cash flow of Rs. 12,000 crores into the system through the purchase of government bonds on October 11 to meet the festival season demand for funds. The RBI said in a statement that the government will purchase bonds with maturity ranging from 2020 to 2030.
The auction to purchase government bonds to maintain the required cash flow in the system, which currently seems like is facing some liquidity issues, is a part of the Open Market Operations (OMO).
RBI statement said, “Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, the Reserve Bank has decided to conduct purchase of the following government securities under Open Market Operations for an aggregate amount of Rs 120 billion on October 11, 2018, through multi-security auction using the multiple price method.”
According to the release, the result of the auction will be declared on the same day and payment to successful participants will be transferred during banking hours on October 12.
As part of the OMOs, the RBI will purchase government securities maturing in 2020 bearing an interest rate of 8.27 per cent, 2022 (8.15 per cent), 2024 (7.35 per cent), 2026 (8.15 per cent) and 2030 (7.61 per cent). The RBI said it has the right to decide on the quantum of purchase of individual securities and can also accept offers for less than Rs 12,000 crore.
OMOs are the tools which can be used to either inject or drain liquidity from the system. It is employed to adjust rupee liquidity conditions in the market on a durable basis.
