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In a surprising move, the Reserve Bank of India (RBI) has decided to simultaneously go for purchase and sale of government securities under a special Open Market Operation (OMO) for ₹10,000 crore each on December 23, 2019.
Usually, the central bank either conducts OMO sales (to suck out excess liquidity in the financial system) or OMO purchase (to infuse liquidity) in a single day.
Status quo on policy rate
The latest move to conduct simultaneous purchase and sale of government securities (G-Secs) under a special OMO, which the RBI said was based on a review of the current liquidity and market situation and an assessment of the evolving financial conditions, comes in the backdrop of the RBI maintaining a status quo on the policy repo rate against market expectation of a rate cut and G-Sec yields consequently going up.
The RBI said it will purchase ₹10,000 crore worth of 6.45 per cent G-Sec (maturing in 2029) and sell four G-Secs, all maturing in 2020 but carrying different coupon rates (6.65 per cent, 7.80 per cent, 8.27 per cent and 8.12 per cent), aggregating ₹10,000 crore.
For the OMO sale, there is no security-wise notified amount. Purchase and sale will be conducted using the multiple price auction method.
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