RBI to inject money to ease liquidity

Why is it in the news ?
  • The Reserve Bank of India (RBI) would inject Rs 10,000 crore into the system through the purchase of government securities on December 6 to increase liquidity.
  • The purchase will be made through open market operations (OMOs).
More in the news
    • The OMO operation will help ease tight liquidity situation triggered by a series of defaults by group companies of IL&FS.
    • The eligible participants should submit their offers in electronic format on the RBI Core Banking Solution (E-Kuber) system on December 6.
    • The result of the auction will be announced on the same day and payment to successful participants will be made on the following day.
    • The RBI also announced an auction of a 12-day Government of India Cash Management Bill. The amount notified for the auction is Rs 30,000 crore.
 
Why Open market operation?
  • Open Market Operation(OMO) is an effective tool during the liquidity crisis.
  • OMO refer to the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. 
  • RBI facilitates this process and uses this technique to manage the liquidity.
  • OMO is a major monetary policy instrument of the RBI.
  • Buying of securities in the open market increases the supply of credit.
  • On the other hand selling of securities reduces the volume of money with the public.
Source
Indian Express.



Posted by Jawwad Kazi on 5th Dec 2018