RBI to restart Operation Twist to manage yields
To sell, buy ₹10,000-cr. bonds each
- The Reserve Bank of India (RBI) has announced simultaneous purchase and sale of government bonds in a bid to soften long-term yields. The central bank will buy ₹10,000 crore of bonds maturing between 2026 and 2030 and sell the same amount of T-bills.
- On a review of current and evolving liquidity and market conditions, the Reserve Bank has decided to conduct simultaneous purchase and sale of government securities under open market operations (OMO) for ₹10,000 crore each on April 27, 2020.
- Such open market operations are known as ‘Operation Twist,’ which was used by the RBI in December last year for the first time.
- Following the announcement, the yields on the 10- year bonds dropped by 20 basis points (bps).
- The move will also aid monetary transmission by prompting banks to pass on interest rate cut benefits to their customers.
- The RBI had reduced key policy rate or the repo rate by 75 bps to 4.4% in the monetary policy review.