The Reserve
Bank of India is to infuse Rs.15,000 crore into
the financial system through bond purchases on June 13.
Why
the infusion:
RBI made the decision after assessing of prevailing liquidity
conditions and also of the durable liquidity needs that
are going forward.
RBI uses Open
Market Operations (OMO) for injecting liquidity into the system through
the purchase of government
bonds (G-sec). Therefore, RBI is to conduct the purchase
of six G-sec
under OMOs through multi-security auction using
multiple price method.
What
is G-Sec?
A government security (G-Sec) is a debt
obligation of the Indian government to fund their fiscal deficit.The
securities are tradable. G-sec is issued either by the central or the state government.
They are offered for short term as well as long term.
Multiple
price-auction
In a multiple price-auction each successful
bidder should pay the price stated bu the player himself. But, in case of
uniform price auctions, all successful bidders should pay the cut-off price,
that is, the same price at which the market clears the issue.
Open
Market Operations:
Open market operations (OMO) refers to the buying and selling of government securities by
the central bank, RBI in case of India, in the open market in order to contract or expand the amount of money
in the banking system. The purchase of the securities will
inject money into the banking system and stimulate growth, while sales of
securities do the opposite and contract the economy.
