The RBI has said it will conduct simultaneous purchase and sale of government securities under Open Market Operations (OMO) for ₹20,000 crore in two tranches.
The auction will be conducted on August 27 and September 3, said the central bank in a statement on Tuesday (August 25).
“On a review of current and evolving liquidity and market conditions, the Reserve Bank has decided to conduct simultaneous purchase and sale of government securities under OMO for an aggregate amount of ₹20,000 crore in two tranches of ₹10,000 crore each,” it said.
The central bank added that it would buy government securities including 6.18%, 8.24%, 5.79%, and 7.95% maturing on November 4, 2024, February 15, 2027, May 11, 2030, and August 28, 2032, respectively.
On the other hand, it will sell securities that mature between October 2020 and November 2020.
The objective seems to raise short-term yields and lower long term yields, sources said.
OMO enables the central bank to adjust liquidity (supply of money) in the market by the way of trading government securities with commercial banks. When the RBI feels there’s excess liquidity it sells its securities and when it feels the liquidity condition is tight, it buys securities from the market.
On August 27, the central bank said it would be selling four securities totalling ₹10,000 crore and will be purchasing four securities of the same amount.
Eligible participants need to submit their bids and offers in electronic format on the RBI core banking solution (E-Kuber) system between 10 and 11 am.
Successful participants are required to ensure the availability of funds and securities in their current account or SGL account by 12 noon on August 28.
With the rising COVID-19 risks, some financial market segments find tightening of financial conditions as reflected in the hardening of yields and widening of spreads.
The RBI has been constantly reviewing current and evolving liquidity and market conditions.