Reserve Bank of India announced on Thursday the direct purchase of government securities by value ₹10,000 crore through open market operations.
In a notification, the RBI said it will buy long-term securities maturing in 2026, 2029 and 2031.
“In a review of the current financial and liquidity conditions, the Reserve Bank has decided to purchase government securities within the framework of Open Market Operations (OMO) for a total amount of ₹10 billion rupees on September 24, 2020, “the central bank said.
Since March, RBI has made several simultaneous purchases and sales of government securities in open market operations. The RBI’s simultaneous sales and purchases of government securities, referred to as “Operation Twist,” are a way of managing returns in the market. By adjusting long-term yields, the RBI wants to lower long-term interest rates to stimulate the weak economy.
During 2020-21 (until July 31), RBI has injected ₹1,24,154 crore through purchases of special open market operations (OMO).
According to a study published by the RBI in the annual report, the announcements of Operation Twist made from December to June have resulted in a cumulative drop in G-sec’s yield by 23 basis points.
The Reserve Bank had used this tool for the last time in April and July of this fiscal year to accelerate the monetary transmission in the system.
According to the RBI, pass-through to bank loan rates has improved, with the weighted average loan rate (WALR) on loans in new rupees declining by 91 bp during March-June 2020. Spreads on rated corporate bonds 3-year AAA over G-Secs of similar maturity has decreased from 276 bp on March 26, 2020 to 50 bp at the end of July 2020. Even for lower investment grade (BBB-) bonds, spreads are have reduced by 125 bp at the end of July 2020.
The simultaneous sale and purchase of government bonds by the central bank, along the lines of the US Federal Reserve’s Operation Twist, is expected to stimulate private sector indebtedness, as well as reduce term premiums. to help the center’s borrowing program by making it cheaper.
.
