RBI announces special OMO worth of Rs 20,000 crore in 2 tranches

The Reserve Bank of India (RBI) on August 25, 2020 announced special open market operations (OMO) for an amount worth Rs 20,000 crore in two equal tranches. 

The apex bank stated that it will conduct a simultaneous purchase and sale of government securities under open market operations.

The auction of government securities will be conducted on August 27 and September 3rd.

Key Highlights

• The RBI stated that it will buy government securities including 6.18 percent, 8.24 percent, 5.79 percent and 7.95 percent maturing on November 4, 2024, February 15, 2027, May 11, 2030 and August 28, 2032, respectively.

• The apex bank will sell securities maturing between October 2020 and November 2020.

• The central bank also reserved its right to decide on the quantum of purchase or sale of individual securities, accept bids or offers for less than the aggregate amount.

• It also reserved its right to decide on the purchase or sell marginally higher or lower than the aggregate amount due to rounding off and to accept or reject any or all bids either wholly or partially without giving any reasons.

Objective 

The main objective behind the sudden announcement of the special open market operations is to raise short-term yields and lower long term yields. The simultaneous purchase and sale of government securities by the RBI will help manage yields in the bond market. 

What are yields?

Yields on security include the amount of cash in percentage terms that returns to the owners of the security, in the form of interest or dividends received from it.