Business Desk – The Reserve Bank of India (RBI) has decided to sell government bonds worth Rs 1 lakh crore to reduce the excess liquidity in the banking system. This will be RBI's first net bond sale in almost two years. The bond sale will take place in three phases. Bonds worth Rs 50,000 crore will be sold on September 17, Rs 25,000 crore on September 21 and Rs 25,000 crore on September 28. Their maturity will be between financial years 2029 to 2032.
First auction on 17th September
In the first auction, eligible participants will be able to bid through RBI's E-Kuber system from 9:30 am to 10:30 am on September 17. The results will be released on the same day. Multi-security auction and multiple-price method will be adopted in the auction. That means there will be bidding for more than one government security and the price will be decided on the basis of different bids.
More than Rs 10 lakh crore of excess cash in the banking system
This decision of RBI has come at a time when there is excess liquidity of more than Rs 10 lakh crore in the banking system. Banks have raised more than expected $127 billion under RBI's special forex mobilization scheme. Due to this, along with increase in foreign exchange reserves, rupee cash in the banking system has also increased.
Effect of excess cash on interest rates
When there is excess money in the banking system, banks have more money to lend and invest. Due to this, overnight interest rates have gone below the repo rate of RBI. RBI believes that excessive liquidity can weaken the effect of monetary policy. Therefore, some cash is being withdrawn from the market by selling government bonds.
Inflation pressure due to crude becoming expensive
High crude oil prices are also a concern for RBI. Expensive crude may increase transport and other costs, which may increase inflationary pressure. In such a situation, RBI wants to control excess liquidity.
Bond yield reached 7.035%
After the RBI announcement, government bond prices came under pressure and yields increased. The 10-year benchmark government bond yield reached 7.035%, up 6 basis points intraday. At the same time, the 5-year bond yield increased by 10 basis points to 6.6222%. That means the effect of RBI's decision was immediately visible in the bond market.
What will be the impact on common people?
This step is not like withdrawing money directly from the bank accounts of common people. The objective of RBI is to reduce the excess cash present in the banking system. However, changes in bond yields and market interest rates may impact loan and investment rates going forward.
