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Covid-19: RBI to Buy $1.35 bln Worth Gov't Securities to Stabilise Financial Markets

© REUTERS / Anushree FadnavisFILE PHOTO: A worker walks past the logo of Reserve Bank of India inside its office in New Delhi
FILE PHOTO: A worker walks past the logo of Reserve Bank of India inside its office in New Delhi - Sputnik International
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New Delhi (Sputnik): The US Federal Reserve has reduced key rates to zero in almost two emergency rates cuts this month to counter the impact of Covid-19 on the economy. The Reserve Bank of India has said a decision on key policy rates will be taken in due course.

India's apex bank and regulator RBI on Wednesday said it will hold an open market operation (OMO) on 20 March to purchase government bonds to stabilise financial markets which have been spooked by Covid-19 fears.

Under the OMO, the RBI will purchase government securities in the open market from Indian banks which will get much-needed liquidity in return. 

Announcing the OMO, the RBI said: "With the heightening of Covid-19 pandemic risks, certain financial market segments have been experiencing a tightening of financial conditions. It is important to ensure that all market segments remain liquid and stable, and function normally."

"Accordingly, on a review of the current liquidity and financial conditions, the Reserve Bank has decided to conduct open market operations on 20 March, 2020 (Friday) in the form of purchase of an aggregate amount of INR 100 billion ($1.35 billion) government securities," the RBI added. 

This is the third intervention from the country's apex bank this week to maintain stability in the financial markets in the country amid panic among investors. India has seen the withdrawal of at least $5.16 billion this month as foreign institutional investors have dumped Indian shares. 

India's apex bank on Monday took two important measures to maintain liquidity. It announced a Dollar/Rupee Sell-buy swap window on 23 March to give an opportunity to Indian banks to bid for Indian currency in exchange for dollars to be returned to the RBI at a later date at a premium. Such swap windows help banks get much needed liquidity. 

The other initiative announced was Long Term Repo Operations worth $13.5 billion -- a tool which would allow banks to lend on benchmark rates so that economic activity can continue during the crisis. 

Even though RBI deployed these tools to counter Covid-19 impact on the economy, it has refrained from reducing key policy rates, unlike central banks elsewhere.

Covid-19 has so far affected more than 150 countries across the world. India has witnessed three deaths so far. 

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