RBI’s record surplus

Why is it in the news ?
  • The higher earnings from foreign exchange operations and large scale open market operations (OMO) conducted by RBI, helped boost the central bank’s surplus to record levels in 2018-19.
More in the news
    • The RBI posted a surplus of ₹1.23 lakh crore in 2018-19 compared to ₹50,004 crore in 2017-18 and ₹30,663 crore in 2016-17.
    • The central bank board had approved the transfer of ₹1.76 lakh crore to the government.
    • The transferred surplus includes the surplus of ₹1.23 lakh crore and excess provisions of ₹52,637 crore identified as per the revised Economic Capital Framework.
    • Liquidity:
      (1) The RBI infused massive liquidity by buying back government securities.
      (2) Holding cash does not yield any return but when invested in securities, interest income is earned.
      (3) Market estimates suggest that the additional income during the accounting year was to the tune of ₹26,000 crore on larger OMOs.
      • Open market operations (OMO):
        (1) OMO refer to the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. 
        (2) RBI facilitates this process and uses this technique to manage the liquidity.
        (3) It is a major monetary policy instrument of the RBI.
        (4) Buying of securities in the open market increases the supply of credit.
        (5) On the other hand selling of securities reduces the volume of money with the public.
         
        Source
        The Hindu.




        Posted by Jawwad Kazi on 29th Aug 2019
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