RBI announces measures to ensure orderly market conditions

RBI announces measures to ensure orderly market conditions

Hyderabad: The Reserve Bank of India (RBI) announced several measures including two more tranches of special open market operations in bonds while also raising the held-to-maturity limit under the statutory liquidity ratio for banks. “The RBI remains committed to use all instruments at its command to revive the economy by maintaining congenial financial conditions, mitigate the impact of Covid-19 and restore the economy to a path of sustainable growth while preserving macroeconomic and financial stability,” the central bank said on Monday.

The Reserve Bank will conduct additional special open market operations involving the simultaneous purchase and sale of Government securities for an aggregate amount of Rs 20,000 crore in two tranches of Rs 10,000 crore each. The auctions would be conducted on September 10 and September 17. Open market operations is a tool that the RBI uses to smoothen liquidity conditions through the year and regulate money supply in the economy. The Reserve Bank will also conduct term repo operations for an aggregate amount of Rs 1,00,000 crore at floating rates (i.e., at the prevailing repo rate) in the middle of September to assuage pressures on the market on account of advance tax outflows.

In order to reduce the cost of funds, banks that had availed of funds under long-term repo operations (LTROs) may exercise an option of reversing these transactions before maturity. Also, RBI stated that notwithstanding an augmented market borrowing programme for 2020-21, it has managed the borrowing calendar for the first half of the year seamlessly, completing more than 90 per cent of scheduled borrowings of the Centre and States in the first half of 2020-21. The RBI has assured that the borrowing programme of the Centre and States for the year 2020-21 will be completed in a non-disruptive manner.

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