RBI Announces Steps To Maintain ‘Orderly’ And ‘Congenial’ Conditions

RBI Announces Steps To Maintain ‘Orderly’ And ‘Congenial’ Conditions

The Reserve Bank of India on Monday announced a series of steps aimed at maintaining “orderly” market conditions and “congenial” financial conditions. The steps came against the backdrop of a sharp rise in bond yields after the Monetary Policy Committee left interest rates unchanged at its last meeting, while raising concerns about the elevated levels of inflation.

To counter the rise in market interest rates, the RBI said it will undertake the following steps: Conduct special open market operation with simultaneous purchase and sale of government securities for an aggregate amount of Rs 20,000 crore in two tranches. The auctions will take place on September 10 and September 17. The RBI also said it remains committed to conducting more such auctions as warranted by market conditions.

The central bank will hold term repo operations for an aggregate amount of Rs 100,000 crore at floating rates in mid-September. This is being done to counter any liquidity pressures that may emerge due to advance tax payments.

In addition, banks that had availed funds under the long term repo operations are being allowed to refinance their borrowings via these term repo auctions at lower costs. This is being done to ensure that banks don’t get stuck with higher cost funds as policy rates fall.

The RBI has allowed banks to hold fresh government securities acquired from Sept. 1, 2020 in the held-to-maturity bucket up to an overall limit of 22% of deposits till March 31, 2021. This will increase demand for government bonds without banks fearing mark-to-market losses due to fluctuation in bond yields