Millennium Post

RBI to sell Rs22,000-cr bonds every Monday to defend `

Faced with a weakening rupee, the Reserve Bank of India  on Thursday announced it will sell government bonds worth Rs 22,000 crore every Monday to check volatility in the forex market.

The measure is a part of a continuing effort to arrest the slide in the rupee, which hit a record intra-day low of Rs 61.80 against the dollar on Tuesday.

‘Over the last two months, the RBI has instituted several measures to contain the volatility in the foreign exchange market,’ the central bank said in a statement.

‘On a review of the impact of these measures and for effective liquidity management, it has been decided that the RBI will auction Government of India Cash Management Bills for a notified amount of Rs 22,000 crore once every week on Mondays,’ it said.The duration of the auction will be announced one day prior to the date of auction, it added.

The decline of the rupee to the previous record intra-day low of 61.21 against the dollar on 8 July forced the RBI to take a series of unconventional measures to curtail liquidity and curb speculation.

On 15 July, the Reserve Bank put in place measures to restore stability in the foreign exchange market, including raising the marginal standing facility and bank rates to 10.25 per cent and restricting access by way of repo window to Rs 75,000 crore. The central bank also conducted open market sales of government securities of Rs 2,500 crore on 18 July. As a contingency measure, it opened a dedicated special repo window for a notified amount of Rs 25,000 crore for liquidity support to mutual funds that face redemption pressure.

A day later, the RBI directed banks to draw only 50 per cent of their total deposits in overnight borrowings and maintain a 99 per cent average cash reserve ratio everyday.

Meanwhile, in a move that will provide considerable relief to the government, the Reserve Bank of India said that  it will transfer to the Centre its surplus profit of over Rs 33,000 crore, more than double the amount given last year.

‘The Reserve Bank's Central Board...approved the transfer of surplus profit to the Union Government amounting to Rs 330.10 billion for the year ended 30 June, 2013 as against Rs 160.10 billion for the year ended 30 June, 2012,’ the central bank said in a statement.
The amount will provide some relief to the government, which proposes to bring down the fiscal deficit to 4.8 per cent of GDP from 4.9 per cent last year.The Reserve Bank follows the July-June accounting year.
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