RBI prefers open market bond sales to suck liquidity: Rajan

RBI prefers open market bond sales to suck liquidity: Rajan

RBI prefers sale of government bonds through open market operations (OMO) to suck out liquidity from the system, which is determined by market conditions, Governor Raghuram Rajan said today.

"We prefer to use OMO sales when there is not much clamour for borrowing from the government, but sometimes we don't really have a choice and we have to do it," Rajan told analysts in a post-policy conference call.

When asked whether OMO sales is dependent on market conditions, Rajan said all actions of the central bank to some extent are affected by the markets.

"Where it is easier to operate, where distortion may be higher or lower, at the end of it, all markets are interconnected and any temporary distortion get dissipated over time," he said.

Rajan said market conditions are a determinant factor to conduct OMOs but there are other factors as well.

"We think of these as us determining where the transaction cost of operating are the lowest and that's where we go and operate where we can," Rajan said.

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