RBI to buy securities worth Rs 12,000 crore from the government

With reference to the Livemint report, The Reserve Bank of India (RBI)
announced that it will by securities worth Rs 12,000 crore from the
government on January, 5, 2011 as part of its decision to inject Rs
48,000 crore into the system.

The apex bank of India said in one of the press release, “There is an
overall aggregate ceiling of Rs 12,000 crore for all the securities in
the basket put together. There is no security-wise notified amount.”

Due to tight liquidity scenario, India’s finance and capital market is
under stress and pressure. From middle of September 2010, the
liquidity has been in the deficit mode for every single day.

The Reserve bank of India tried different measures in recent days to
ease liquidity. It allowed additional liquidity support of 2% of the
statutory liquidity ratio (SLR) to individual banks. In the last
monetary policy review, it announced a cut in SLR by 1% to 24%,
releasing Rs 48,000 crore in the system and said it would conduct open
market operations to buy government securities worth Rs 48,000 crore.

Economists however feel that liquidity crunch may continue to persist
in the short term at least. The RBI has itself said that liquidity
will ease considerably only after the government’s cash balance with
the central bank, which is currently over Rs 80,000 crore, comes down.
Further, banks will have to push up deposit growth which continues to
remain well below the loan growth rate.

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