The Reserve Bank of India (RBI) on Thursday announced an outright purchase of Rs 10,000 crore of bonds from the secondary markets, to be conducted on September 24.
The central bank will purchase government securities worth Rs 10,000 crore maturing in September 2026, October 2029 and September 2031.
It will purchase three sets of sovereign securities maturing in the next six to 11 years.
What is OMO and how does it work?
Open market operations (OMO) is a measure used by the central bank of the country to manage money supply in an economy.
This can be done by Central Bank by either purchasing or selling government bonds in the open market.
In case, the liquidity condition of the economy is weak, the central bank purchases government securities in the market.
And in case, the liquidity condition of the economy is good, the central bank sells government securities in the market.
How to bid for upcoming securities?
Eligible participants should submit their bids in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system between 10:00 am and 11:00 am on September 24.
The result of the auction will be announced on the same day and successful participants will be allotted requisite amount of securities in their Subsidiary General Ledger (SGL) account by 12 noon on September 25, 2020.
How it will be conducted?
The central bank will conduct a switch, a window through which it will buy back shorter-duration bonds worth Rs 24,000 crore selling equivalent long-term papers.
The switch will be held on September 21. The government will sell bonds maturing in 2031, 2033 and 2060 as it buys back securities, scheduled to mature in two years.
The central bank reserves the right to decide on the quantum of purchase of individual securities, accept bids for less than the aggregate amount, purchase marginally higher than the aggregate amount due to rounding-off and accept or reject any or all the bids either wholly or partially without assigning any reasons.
Annual borrowing of the Government
The government’s annual borrowing target is Rs 12 trillion, of which more than half has been borrowed at near 6 per cent yields
With the announcement of the OMO, the central bank also said it would convert some bonds maturing between April, 2021 and December 2022 for securities maturing between 2031 and 2060.
Earlier Reforms of RBI
Earlier this month, the RBI had on September 7 announced a special round of simultaneous sale and purchase of government securities (G-Secs) for Rs 10,000 crore each on September 10.
On March 26, The RBI had carried out an outright OMO purchase operation of Rs 15,000 crore.