RBI announces additional measures to foster orderly money market conditions

“The RBI remains committed to conduct further such operations as warranted by market conditions,” the central bank said

The Reserve Bank of India (RBI) said it would conduct additional, special open market operation involving the simultaneous purchase and sale of Government securities for an aggregate amount of ₹20,000 crore in two tranches of ₹10,000 crore each.

The auctions would be conducted on September 10, 2020 and September 17, 2020.

“The RBI remains committed to conduct further such operations as warranted by market conditions,” the central bank said.

While announcing special open market operations on August 25, 2020 the RBI had stated that it would continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly functioning of financial markets.

RBI said it will conduct term repo operations for an aggregate amount of ₹100,000 crore at floating rates (i.e., at the prevailing repo rate) in the middle of September to assuage pressures on the market on account of advance tax outflows.

“Thus, the banks may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15%) and availing funds at the current repo rate of 4%,” it said.

The RBI said recently, market sentiment had been impacted by concerns relating to the inflation outlook. The Monetary Policy Committee (MPC) on August 6, 2020 expected that although headline inflation may remain elevated in the second quarter of this fiscal,, it would moderate in the second half ending March 2021.

“Accordingly, the MPC decided to pause and remain watchful and use the available space judiciously to support the revival of the economy. There are indications that food and fuel prices are stabilising and cost push factors are moderating,” it said.

The RBI has assured that the borrowing programme of the Centre and States for the year 2020-21 will be completed in a non-disruptive manner. It said the recent appreciation of the rupee was working towards containing imported inflationary pressures. “The RBI remains vigilant about these developments,” it said.

In support of the accommodative stance of monetary policy, the RBI said it was committed to ensuring comfortable liquidity and financing conditions in the economy.

Notwithstanding an augmented market borrowing programme for 2020-21, the RBI said it had managed the borrowing calendar for the first half of the year seamlessly, completing more than 90% of scheduled borrowings of the Centre and States in the first half ending September 30.

(With PTI inputs)

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