An Indian man, left, gets a high denomination currency note of Indian rupees 2000 exchanged for smaller notes at a roadside stall.(Photo: AP)

RBI To Pump Rs 12,000 Crore Into System On Oct.11

The Reserve Bank of India today announced that it will inject Rs 12,000 crore liquidity into the system through purchase of government bonds on Oct. 11 for meeting the festive demand of funds.

The government will purchase bonds with maturities ranging between 2020 to 2030, the RBI said in a statement. The auction to purchase government bonds is a part of the Open Market Operations to manage liquidity in the system which seems to be facing tightness.

Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, the Reserve Bank of India has decided to conduct purchase of the following government securities under Open Market Operations for an aggregate amount of Rs 120 billion on Oct. 11, 2018 through multi-security auction using the multiple price method,
The Reserve Bank Of India 

The result of the auction will be announced on the same day and payment to successful participants will be made during banking hours on Oct. 12, RBI said. As part of the OMOs, the RBI will purchase government securities maturing in 2020 bearing interest rate of 8.27 percent, 2022 (8.15 percent), 2024 (7.35 percent), 2026 (8.15 percent) and 2030 (7.61 percent).

The central bank also said that 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.

Also read: India Monetary Policy: RBI Proposes New Scheme To Boost And Retain FPI Debt Investments

It may as well purchase marginally higher than the aggregate amount due to rounding-off effect, it said, adding it can also accept of reject any or all the offers either wholly or partially without assigning any reason.

OMOs are the tools which may 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.

If there is excess liquidity, the RBI resorts to sale of securities and sucks out the rupee liquidity. Similarly, when the liquidity conditions are tight, it buys securities from the market, thereby releasing money into the market.

Also read: RBI To Buy Rs 36,000 Crore Of Bonds In October To Add Liquidity