The RBI said that it will continue to monitor evolving liquidity
and market conditions and take measures as appropriate to ensure the orderly functioning of financial markets.
Such bond buy and sell operations, however, are a way of softening long-term yields that help the government borrow cheap. Besides, they also give the central bank enough long-term bonds to support its liquidity
operations. The central bank has to offer bonds to banks
keeping their surplus liquidity with the central bank and for that, it must have enough bonds. Once the bonds mature in RBI holding, the central bank may fall short of such bonds. The buy and sell OMO operations protect the central bank from such an option.
Earlier, an article published in the RBI's bulletin said that the Reserve Bank will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure the orderly functioning of financial markets. The Reserve Bank of India
(RBI) initiated two special market operations -- OT and LTRO since December 2019 and February 2020, respectively. They were designed to ensure comfortable liquidity in the financial system and to facilitate monetary policy transmission.
OT involves buying of GSECs with longer-term maturities -- ten years and five years -- and selling of shorter-term GSECs of original/ residual maturities of one and three years.
LTROs are repurchase agreements collateralised by government securities, by which the central bank lends money to the banks
for one to three years at the policy repo rate.
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