RBI to purchase Rs 1.25 lakh-crore bonds in May—Catch key takeaways

The Reserve Bank of India (RBI) on Monday announced bond purchases amounting to Rs 1.25 lakh crore in May. Using the open market operation (OMO) route, the central bank will undertake bond purchase auctions of government securities in four tranches, starting with Rs 50,000 crore worth bonds on May 6, according to an official release. 

Here are details of the four tranches, as communicated by the RBI: 

The RBI will issue detailed instructions about each tranch separately. 

The central bank also reiterated that it will continue to monitor evolving liquidity and market conditions and take necessary steps to "ensure orderly liquidity conditions" in the system going forward.

This month, the central bank undertook similar bond buys in a similar drive, purchasing government securities amounting to Rs 20,000 crore. 

The RBI utilises the open market route to adjust liquidity conditions in the domestic banking system from time to time. 

The Reserve Bank of India accepts eligible participants' bids in electronic format on its Core Banking Solution system, called E-Kuber. It only accepts physical bids in the event of system failure. 

The outcome of the auction is announced on the same day.

Explained: What are open market operations?

OMOs involve the buying or selling of government securities (also known as G-Secs) by the RBI to manage the supply of money in order to adjust the liquidity conditions in the market.

Open market operations serve as an effective liquidity-adjustment tool that enble the RBI to sell or purchase G-Secs to or from the market in order to adjust the rupee liquidity conditions on a durable basis. 

Typically, the RBI offloads G-Secs when it detects excessive liquidity in the market, and resorts to purchases in tight liquidity conditions.

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