The Reserve Bank of India will purchase bonds worth up to Rs36,000 crore has given upfront guidance of its planned bond purchases under the open market operation in the month of October.
In its press release dated 27 September 2018, RBI had reassured financial markets that it stood ready to meet the liquidity requirements of the system.
RBI, during its previous post-monetary policy press conference, had announced plans to inject durable liquidity through OMO purchase auctions in October 2018 to cater to the needs of increased cash during the coming festivals.
RBI had said that the system liquidity will move into deficit in the second half of the fiscal year and that the evolving liquidity conditions will determine its choice of instruments for both transient and durable liquidity management.
“Based on an assessment of the durable liquidity needs going forward and the seasonal growth in currency in circulation observed in build-up to the festive season, RBI has decided to conduct purchase of government securities under Open Market Operations (OMOs) for an aggregate amount of Rs36,000 crore in October 2018.The auctions would be conducted during the 2nd, 3rd and 4th week of October,” RBI stated in a release today.
The auction dates and the Government securities to be purchased in respective auctions would be communicated in due course, it said.
RBI said the OMO amount is tentative and that the central bank retains the flexibility to change it, depending on the evolving liquidity and market conditions.
The RBI stepped up liquidity injections in September after signs of strain emerged in some parts of the money market. Liquidity tightened for a host of reasons including advance tax outflows.
On top of these, defaults by the IL&FS group also constrained the flow of available liquidity and led to nervousness in the markets.
In September, the RBI conducted two open market operations. It also allowed an additional carve out from the SLR kitty of banks, which could be used to meet Liquidity Coverage Ratio requirements.
Bond yield fell due to the announcement and the governments decision to cut gross market borrowings in the second half.
As of September 26, banks had availed of Rs1,88,000 crore through term repos from the Reserve Bank.
As a result of these steps, the system liquidity is in ample surplus.
Going forward, the Reserve Bank stands ready to meet the durable liquidity requirements of the system through various available instruments depending on its dynamic assessment of the evolving liquidity and market conditions.
Meanwhile the rupee weakened by 36 paise to 72.84 against the US dollar even as the RBI announced plans to purchase government bonds worth Rs 36,000 crore to boost liquidity.
The domestic unit rupee had gained 11 paise to close at a one-week high of 72.48 against the US dollar On Friday.