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RBI announces steps to ease pressure on liquidity, maintain congenial financial conditions

01 Sep 2020 Evaluate
In order to ease pressure on the liquidity and maintain congenial financial conditions with a view to ensuring sustainable recovery of economic growth, the Reserve Bank of India (RBI) announced a host of steps, including term repo operations totalling Rs 1 lakh crore in mid-September. It said the RBI stands ready to conduct market operations as required through a variety of instruments so as to ensure orderly market functioning, it added that recently market sentiment has been impacted by concerns relating to the inflation outlook and the fiscal situation amidst global developments that have firmed up yields abroad.

The RBI said that 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. Thus, the banks may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15 per cent) and availing funds at the current repo rate of 4 per cent. The last date for paying the second instalment of advance tax is September 15.

Further, the RBI will conduct additional special open market operation 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, 2020, and September 17, 2020. The RBI remains committed to conducting further such operations as warranted by market conditions.

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