The Reserve Bank of India on Monday announced that it would purchase Rs 20,000 crore ($2.74 billion) of government securities under Open Market Operations, a move that will boost liquidity in the system and support the government’s borrowing programme.
“The Reserve Bank stands committed to ensure the availability of ample liquidity in the system in order to foster congenial financial conditions. On a review of current liquidity and financial conditions, therefore, the Reserve Bank has decided to conduct purchase of Government securities under Open Market Operations (OMO) for an aggregate amount of ₹20,000 crore on February 10, 2021,” the RBI said.
For the fiscal year starting in April, the government has a Rs 12.06 lakh crore borrowing programme.
India’s 10-year bond yields closed at 6.044 per cent from a previous close of 6.071 per cent, after the announcement.
The RBI recently declined from cutting repo rates, the fourth time in a row that the monetary policy committee (MPC) decided to keep the policy rate unchanged. The bank repo rate remains at 4.25 per cent while the reverse repo rate is 3.35 per cent. The policy repo rate is 4 per cent.
“Given that inflation has returned within the tolerance band, the MPC judged that the need of the hour is to continue to support growth, assuage the impact of COVID-19 and return the economy to a higher growth trajectory,” said RBI Governor Shaktikanta Das.
However, the RBI also announced plans to allow investors to directly buy government bonds.
Such bonds are preferred by investors hoping to beat inflation whilst also making a reliable investment. However, until now, retail investors could only buy these bonds through non-competitive bidding. Das said that India would become the first country in Asia to allow direct retail pasrticipation in G-secs.
The MPC expects inflation in the current January-March quarter to be around 5 2 per cent, and sees it in the 5.2 per cent-to-5.0 per cent range in the first half of the next financial year. It has also projected inflation at 4.3 per cent for the third quarter of 2021-22.
“The outlook on growth has improved significantly with positive growth impulses becoming more broad based and the rollout of the vaccination programme in the country auguring well for the end of the pandemic,” Das said.
The central bank expects India’s GDP to grow at 10.5 per cent in 2021-22.
