The Reserve Bank of India (RBI) on Thursday discussed it could conduct specific open market operations on 2 July to buy long-dated government bonds value ₹10,000 crore and advertise shorter-tenure ones of the an identical value. This simultaneous achieve and sale achieve of government securities in the course of the central monetary establishment, dubbed Operation Twist, is aimed toward pushing long-term interest rates lower. RBI discussed it could acquire bonds maturing between 2027 and 2033, and advertise those maturing between 2020 and 2021.
Yields on short-dated government bonds have slumped in recent weeks, amid a flush of liquidity, while those on long-tenure paper keep stubbornly high. Buoyant long-term interest rates tend to make government borrowing dear. By twisting the yield curve and pulling down it somewhat, RBI hopes to catalyse credit score rating and spur monetary growth. Commercial banks have been loath to fund duties, as an old-fashioned pile-up of bad loans and an monetary contraction combine to threaten their own financial stability. Unless we see a revival in name for, efforts to compress the cost of capital would possibly not help our financial device so much. Yet RBI may have to try. It must use each and every tactic it’s got.