RBI's big decision to maintain cash flow in the system will buy government bonds worth ₹1.25 lakh crore from the open market

The Reserve Bank of India (RBI) has decided to inject more cash into the banking system by buying government bonds worth a total of Rs 1.25 lakh crore in May. The move is also expected to boost bond prices, which fell due to selling by foreign banks and primary dealers following the uncertainty created after the Pahalgam terror attack.

The operation will be in 4 phases.

RBI's open market operation (OMO) to buy government bonds will be held in four phases between May 6 and 19. According to the RBI statement, this decision was taken after reviewing the current and cash conditions. The move comes soon after the RBI announced the purchase of government bonds worth Rs 80,000 crore on April 1, followed by another purchase of Rs 40,000 crore on April 11.

RBI eyeing liquidity

RBI Governor Sanjay Malhotra has said that the central bank will continue to monitor liquidity and market conditions and take appropriate measures to ensure orderly liquidity conditions. The 'buying of bonds' is a continuation of the recent steps taken by the RBI to inject liquidity into the system.

In March, the bank had made OMO purchases of government securities worth Rs 1 lakh crore in two tranches of Rs 50,000 crore each. The central bank also conducted a dollar-rupee buy/sell swap auction of $10 billion for 36 months.

Second cut in interest rates

In addition, the central bank reduced the cost of borrowing by cutting the benchmark repo rate by 25 basis points and changing its stance from neutral to accommodative.

These steps were taken as part of the 'soft money policy' to boost economic growth as inflation rates decline. According to financial analysts, the fresh cash flow is also expected to fetch better prices for the new benchmark bonds, which will be auctioned on May 2. The RBI announced the new bonds after the old benchmark bonds completed the outstanding amount of Rs 1.84 lakh crore.