In order to maintain financial stability in the system in the wake of coronavirus outbreak in the country, the Reserve Bank of India (RBI) has decided to inject liquidity of Rs 10,000 crore through open market operations (OMOs) on March 20. With the heightening of COVID-19 pandemic risks, certain financial market segments have been experiencing a tightening of financial conditions as reflected in the hardening of yields and widening of spreads. Thus, it is important to ensure that all market segments remain liquid and stable, and function normally.
Accordingly, the RBI has decided to conduct open market operations on March 20, 2020 in the form of purchase of an aggregate amount of Rs 10,000 crore of government securities through a multi-security auction using the multiple price method. It will purchase securities with coupon rate of 8.20% (maturity February 15, 2022); 7.37% (April 16, 2023); 7.32% (January 28, 2024) and 7.72% (May 25, 2025). It said that there is no notified amount against any of these securities within the aggregate ceiling of Rs 10,000 crore set for the operation.
The result of the auction will be announced on the same day and payment to successful participants will be made during banking hours on March 23, 2020. It added that successful participants should ensure availability of requisite amount of securities in their SGL accounts on March 23, 2020. OMOs are money market tools to suck or inject liquidity into the system. When there is enough liquidity, the RBI resorts to selling of government securities to take out money supply, while it purchases the same when the market needs the money.
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