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RBI buys Rs 10,000 crore Worth Long-Term Govt Securities in 2nd Special OMO

Current context: In the 2nd Special Open Market Operation (OMO), the RBI bought Rs 10,000 crore of long-term government securities and sold Rs 8,501 crore of three short-term bonds on 30th Dec 19.
RBI buys Rs 10,000 crore Worth Long-Term Govt Securities in 2nd Special OMO 
  • Last week, the RBI had announced to purchase and sell simultaneously government securities under Open Market Operations (OMO) for Rs 10,000 crore each.
  • During the operation, RBI sold four securities in the auction but it accepted bids for three securities only.
  • The RBI offered to sell four government securities through OMO sale that include:
    1. 6.65 per cent GS in 2020
    2. 7.80 per cent GS in 2020
    3. 8.27 per cent GS in 2020
    4. 8.12 per cent GS in 2020
  • The RBI received Rs 25,698 crore worth of bids in the OMO purchase of 6.45 per cent GS 2029, the 10- year benchmark security but accepted Rs 10,000 crore of bids.
  • It accepted only Rs 8,501 crore worth of bids for the three securities as against Rs 38,551 crore bids it received in for four securities in the OMO sale auction.
  • The cut-off yield at which bids were accepted was 6.4874%.
  • These special OMO auctions are similar to the US Federal Reserves' 'Operation Twist' aimed at the faster transmission of policy rates.

Question: 

Q.1 Choose the correct statement about Open Market Operations (OMO)?
  1. OMO is the sale and purchase of government securities and treasury bills by RBI or the central bank of the country.
  2. When the RBI wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.
a. Only 1
b. Only 2
c. Both 1 and 2
d. None of the above
RBI buys Rs 10,000 crore Worth Long-Term Govt Securities in 2nd Special OMO RBI buys Rs 10,000 crore Worth Long-Term Govt Securities in 2nd Special OMO Reviewed by Neha Verma on December 30, 2019 Rating: 5

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