The RBI also said that the government’s borrowing program of Rs 12.05 trillion in the financial year starting from April will not have much effect. Even after this announcement by the RBI, bond yields rose on Friday. Actually, investors were looking for more clarity from the RBI regarding bond buying.
RBI can make more purchases through auction
RBI said on Friday, “After a review of the current liquidity and financial conditions, the Reserve Bank has decided to buy government securities worth Rs 20,000 crore on February 10 through an open market operation.” It is estimated that the central bank can make more purchases through auction to support the government’s lending program.
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What is the government’s plan for borrowing?
Explain that in the financial year 2021-22, the central government will borrow 12.05 lakh crore rupees from the market. This is lower than the Rs 12.80 lakh crore in the current financial year. According to the revised estimate, the total borrowing limit for the current financial year was raised to Rs 12.80 lakh crore. However, in the budget, the estimate was only 7.8 lakh crore rupees.
The government raises money from the market to meet the financial deficit
Repayment of old loans will also be included in the total borrowing. In the next financial year, the loan repair amount will be 2.80 lakh crore rupees. The central government raises money from the market through securities and treasury bills to meet its financial losses. After this, the total borrowing will come down to Rs 9.24 lakh crore in the next year. Whereas, it is estimated to be Rs 10.52 lakh crore in the current financial year.
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Why RBI does the buying and selling of government bonds
The RBI maintains liquidity through open market operations. When RBI has to add some liquidity to the system, it purchases bonds through the open market. Conversely, when the RBI has to reduce liquidity in the market, then it sells bonds.