To ensure adequate liquidity in the banking system at a time when the quarterly advance tax outgo is coinciding with an Rs 30,000-crore term repo maturity, Reserve Bank of India (RBI) on Thursday evening announced that government would be buying back Rs 15,000 crore worth of bonds maturing between May and February 2015 by utilizing "its surplus cash balances" with RBI.
The buyback, which would take place on March 18, would purely be ad hoc in nature. It shall not be an open market operation, which the central bank conducts to manage liquidity in the system, nor a "debt switch" either, in which the government had earlier proposed to buy bonds maturing in the short-term and replace it with longer period debt. Once bought back, these bonds will cease to exist unlike bonds bought by the RBI under open market operations.
The bonds that the government will buyback are 6.07%, 2014 bond, 10%, 2014 bond, 7.32%, 2014 bond, 10.50%, 2014 bond, 7.56%, 2014 paper, 11.83%, 2014 bond and 10.47%, 2015.
This in addition with its planned Rs 50,000-crore infusion through a term repo auction, will infuse a total of about Rs 65,000 crore into the system in aggregate. Consequentially, this will leave about net Rs 35,000 crore funds in the system given the Rs 30,000-crore term repo maturity, which would able to to take care of the advance tax outgo.
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