The Reserve Bank of India (RBI) will pump Rs 36,000 crore into money markets in October via the purchase of government bonds in a bid to quell fears of a credit crunch cascading through the economy.
The auctions to purchase government bonds will be conducted in the second, third and fourth week of October.
“Based on an assessment of the liquidity needs going forward and the seasonal growth in currency in circulation observed in build-up to the festive season, the RBI has decided to conduct purchase of government securities under open market operations for an aggregate amount of Rs 36,000 crore in the month of October,” the RBI said in a release on Monday.
The latest move to inject liquidity into the system came after the government on Friday announced a borrowing target of a gross Rs 2.47 lakh crore, with higher-than-expected earnings from its small savings scheme helping to reduce its borrowing needs by Rs 70,000 crore.
In response, bond yields dropped sharply to their lowest in more than a month on Monday morning, but profit-taking and a falling rupee pushed yields higher towards market close.
The benchmark 10-year bond yield fell 12 basis points to 7.90 per cent in opening deals, its lowest level since August 29. But it closed down just 3 basis points at 7.99 per cent.
