Amid Coronavirus outbreak plunged the financial system, Reserve Bank of India (RBI) will initiate open market operation (OMO) on March 20 in order to maintain the balance in the Indian economy. The RBI is about to buy government securities (G-secs), worth amount of ₹10,000 crore for the duration of two to five years.
“With the heightening of COVID-19 pandemic risks, certain financial market segments have been experiencing a tightening of financial conditions as reflected in the hardening of yields and widening of spreads. It is important to ensure that all market segments remain liquid and stable, and function normally,” RBI cited in a release.
As soon as RBI decided to purchase bond, the benchmark for 10-year bond slump to 6.24 per cent. Earlier, central bank had used liquidity tools to bring down purchasing costs in the economy. It used a mixture of both long-term repurchase operations (LTRO) and Federal Reserve-style ‘Operation Twist’ that enhance cash flow in the banking system.
However, on Monday, RBI Governor, Shaktikanta Das declared another 1 lakh of LTROs to boost dollars after the first auction received bids for more than $2 billion on offer.