RBI Announces Liquidity Operations Worth Rs 20,000 Crore
- 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.
- 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".
- 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.
- 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.
- 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.
- 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.
- The move was aimed at reviving economic growth and mitigate the impact of COVID-19 while ensuring inflation remains within target.
- Despite the dovish tone, the minutes released last week suggested the bank sees little room for rate cuts in the current environment.
- 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)
- 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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