This Article is From Aug 25, 2020

RBI Announces Liquidity Operations Worth Rs 20,000 Crore

The move comes days after minutes of its last policy review showed the RBI acknowledges there is room for further rate cut but is unlikely to implement it any time soon due to rising inflation.

RBI Announces Liquidity Operations Worth Rs 20,000 Crore

The RBI said it will continue to "monitor evolving liquidity and market conditions"

The Reserve Bank of India on Tuesday announced sale and purchase of G-Secs or government securities worth Rs 20,000 crore. In a statement, the RBI said it decided to conduct open market operation (OMO) in two tranches of Rs 10,000 crore each, after reviewing the "current and evolving liquidity and market conditions". The move comes days after minutes of last policy review showed the RBI acknowledges there is room for further rate cut but is unlikely to implement it any time soon due to rising inflation.

Here are 10 things to know:

  1. The RBI said the simultaneous sale and purchase of bonds - also known as open market operations - will be conducted in two tranches on August 27 and September 3.

  2. The Reserve Bank of India said it will continue to "monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly functioning of financial markets".

  3. The central bank said eligible participants are required to submit their bids in electronic format through its E-Kuber system, between 10:00 am and 11:00 am on August 27. The result of the auctions will be announced on the same day.

  4. Open market operations enable a central bank to adjust liquidity - or supply of money - in the banking system. Central banks do so by way of trading government bonds with commercial banks.

  5. The RBI decides on the quantum of sale/purchase of securities, and has the power to accept or reject any bids either wholly or partially without assigning any reasons.

  6. On August  6, the RBI's Monetary Policy Committee unanimously decided to pause interest rates and maintain its "accommodative" stance for as long as necessary.

  7. The move was aimed at reviving economic growth and mitigate the impact of COVID-19 while ensuring inflation remains within target.

  8. Despite the dovish tone, the minutes released last week suggested the bank sees little room for rate cuts in the current environment.

  9. The RBI has already reduced the repo rate - or the key interest rate at which it lends short-term funds to commercial banks - by a total of 115 basis points since February, on top of the 135 basis points in an easing cycle last year, from 6.50 per cent. (Also Read: War Against Coronavirus Most Intense At Current Juncture, Says Shaktikanta Das)

  10. Meanwhile, the central bank expects the country's real gross domestic product (GDP) to remain in a contractionary mode in both the first half and all of financial year 2020-21. Official data for the April-June period will be released next week.



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