The Reserve Bank of India (RBI) has announced to conduct “Operation Twist” under its open market operations.
Under this operation, the RBI will simultaneously buy and sale government securities worth ₹10,000 crore each on December 23 , 2019. The central bank said it will buy ₹10,000 crore of 6.45% government bonds maturing in 2029 and simultaneously sell ₹10,000 crore of short-term bonds maturing in 2020.
The move is aimed at managing the yields.
Reason and process
According to the RBI, after review of the current liquidity and market situation and an assessment of the evolving financial conditions, it has decided to conduct simultaneous purchase and sale of government securities under Open Market Operations (OMO) for ₹10,000 crore each on December 23, 2019.
The RBI will purchase the longer-term maturities, that are trading at a spread of 150 bps (basis points) over the repo rate, so that the yield of these papers will soften and sell the shorter duration ones.
US example
The U.S. Federal Reserve has also used Operation Twist in 2011-12 to make long-term borrowing cheaper.
