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In a bid to meet durable liquidity requirements of the financial markets, the Reserve Bank of India, on Tuesday, said it will infuse liquidity by purchasing government securities (G-Secs) under Open Market Operations (OMOs) for an aggregate amount of ₹40,000 crore in December 2018.
Simultaneously, the central bank also announced that it would purchase five government securities (G-Secs) under OMOs for an aggregate amount of ₹10,000 crore on November 29.
In the current month, the RBI has conducted OMO purchase of G-Secs four times aggregating ₹30,000 crore.
OMOs are the market operations conducted by the RBI by way of sale purchase of G-Secs to/from the market, with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
When the RBI feels there is excess liquidity in the market, it resorts to sale of securities, thereby sucking out rupee liquidity. Similarly, when liquidity conditions are tight, the RBI may buy securities from the market, thereby releasing liquidity into the market.
IL&FS imbroglio
To help financial markets overcome liquidity tightness following the IL&FS imbroglio, the RBI has been conducting OMOs since the second half of September. The central bank conducted two OMOs in the second half of September to inject ₹20,000 crore of durable liquidity.
In the wake of the ripple impact of the debt defaults by IL&FS, and some of its arms, including those in the housing finance space, the companies and the government wanted the RBI to open a special liquidity window for them. However, the RBI has been silent on this request.
On September 27, the RBI reassured the financial markets that it stands ready to meet the liquidity requirements of the system.
Following this announcement, the RBI conducted two OMO purchases in the second half of September. Further, the RBI purchased G-Secs under OMOs for an aggregate amount of ₹36,000 crore in October 2018. This was based on an assessment of the durable liquidity needs going forward, and the seasonal growth in currency in circulation observed in the build-up to the festival season.
To repeat exercise
The RBI will also repeat the OMO purchase exercise in November. It purchased G-Secs under OMOs for an aggregate amount of ₹40,000 crore.
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