For the last couple of months, the country has been facing a shortage of liquidity. In order to curb this issue, the RBI has decided to buy bonds from the market and increase liquidity.
The RBI will conduct open market operation (OMO) starting from the second week of October. The amount for which RBI will be buying bonds will be Rs 36,000 crores. The RBI also has the discretion to change the amount.
The Apex Bank released a statement which said: “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 Rs 360 billion, or Rs 36,000 crore, in the month of October 2018.”
What are Open Market Operations?
OMOs are the tools for maintaining or lessening liquidity in the system. The concept is quite simple. When there is high liquidity in the market, there is high spending, which contributes to inflation. To combat that problem, the RBI sells bonds. This drains the money from the economy and thus balance is forged in the economy.
Similarly, when RBI wants to increase liquidity, it buys bonds. This adds to the liquidity. This time around, it has to opt for the second alternative. The RBI hasn’t yet released a date for the bond buying. The recently released press release by RBI suggested clearly that RBI was ready to face all the liquidity requirements of the country.
“The system liquidity will move into deficit in the second half of the fiscal year and that the evolving liquidity conditions shall determine its choice of instruments for both transient and durable liquidity management, RBI statement said.
The government and RBI are just on their toes to confront any issue facing the country.