MUMBAI: The Reserve Bank of India (RBI) will conduct open market operations (OMO) on Thursday to purchase government bonds to infuse liquidity of Rs 10,000 crore.
“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 government securities under Open Market Operations for an aggregate amount of Rs 100 billion on September 27, 2018 (Thursday),” India’s apex bank said in a release on Monday.
The purchase will happen through multi-security auction using the multiple price method, it said. As part of the OMOs, the RBI will purchase government securities maturing in 2020 bearing interest rate of 7.80 per cent, 2022 (8.20 per cent), 2025 (7.72 per cent), 2027 (6.79 per cent) and 2031 (6.68 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 10,000 crore.
It may as well purchase marginally higher than the aggregate amount due to rounding-off effect, it said, adding it can also accept or reject any or all the offers either wholly or partially without assigning any reason.
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.
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. The RBI and capital market regulator Sebi on Sunday said they were closely monitoring activities in the financial markets and ready to take appropriate actions, if required, following a sharp meltdown on Friday in equity and debt markets.
The regulators came out with separate but identical statements amid apprehensions about steep volatility in markets on Monday.
The stock market is on the roil for past week on the back of debt defaults by diversified IL&FS group. There are also worries about non-banking financial companies even though the country’s largest lender SBI assured lending support to the NBFC sector.