RBI planning to conduct open market sales of bonds
Mumbai: India's Central bank, the Reserve Bank of India (RBI), is planning to conduct open market sales of bonds once government spending increases and there is an improvement in durable liquidity surplus, Reuters reported.
The core liquidity surplus includes the government's cash balances held with the central bank.
Earlier this month, the RBI announced its intention to sell bonds through open market operations (OMOs) to manage banking system liquidity, but did not specify the amount or timing of the bond sales.
This uncertainty has led to nervousness among bond investors and a rise in yields. Despite plans to reduce the amount of cash in the banking system, the RBI prefers to maintain liquidity in "some surplus" to support productive sectors of the economy.
The term "frictional changes" refers to short-term fluctuations in banking liquidity, while longer-term withdrawals or additions of cash affect durable liquidity.
Currently, banking system liquidity is in a deficit of nearly 179 billion rupees, wider than the previous day's deficit of 30 billion rupees.
It is anticipated that banking liquidity will return to surplus in early November due to government expenditure and the maturity of bonds worth around 540 billion rupees on November 2.
Durable liquidity refers to the persistent or long-term availability of funds in a financial system. It represents the stable and sustained level of liquidity that is necessary to support economic growth and stability over an extended period. Durable liquidity is important for various economic activities, including investment, lending, and business operations.
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