MUMBAI: The Reserve Bank of India’s surprise announcement of new open market purchases of government bonds is a sign the central bank is stepping up efforts to increase the economic impact of its policy decisions, analysts say. The RBI’s two rate cuts this year, totalling 50 basis points, have not been followed with moves of a similar magnitude by commercial banks, which are reluctant to take risks while sitting on a pile of non-performing loans. But RBI Governor Shaktikanta Das, who took over in December, has shown more willingness than his predecessor Urjit Patel to experiment with liquidity management in a bid to smoothen the transmission mechanism of his policies. If banks don’t lower their interest rates, consumers and businesses don’t benefit from RBI’s moves, and the overall growth impact of rate cuts is less than intended. In an unexpected move late on Tuesday, the RBI announced a new set of open market operations to purchase a total of 250 billion rupees ($3.58 billion) worth of bonds in May, with the first auction for 125 billion rupees on May 2. While such operations are not unusual, the timing of the announcement took markets by surprise, as it came immediately after… Read full this story
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