Why in News?

• Recently, RBI has planned to conduct “Operation Twist”.

About Operation Twist:

• Operation Twist is actually a move that is used by U.S Federal Reserve in past.
• The central bank uses the proceeds from the sale of short-term bonds to buy long term government bonds, leading to easing of interest rates on the long-term bonds.
• It involves simultaneous purchase and sale of government securities under Open Market Operations (OMO) for 10,000 crore each.
• It will purchase the longer (government bonds maturing in 2029), and simultaneously sell the shorter duration ones (short-term bonds maturing in 2020).
• It will be done through electronic platform.

About Open Market Operations:

• Open Market is known as unrestricted, free access market.
• It aims to regulate the money supply in the economy.
• It is used to adjust the liquidity conditions in the market.
• It is the sale and purchase of government securities and T-bills by RBI.
• During increase in liquidity condition then RBI sells G-secs to Open Market.
• During decrease in liquidity condition then RBI buys G-secs from Open Market.

Repurchase or buyback of G-secs:

• It is known as buying back the existing securities that are sold in Open Market.
• Sometimes RBI Prematurely buys G-secs.
• The Reasons are to:
  • Reduce the cost of particular G-secs (High coupon G-secs),
  • Reduce the number of outstanding G-secs and improve liquidity,
  • Infuse liquidity in the system

 Government Securities (G-Secs):

• It is a Tradeable Instrument that is issued by the central Government/ state governments.
• It is also called as risk-free gilt-edged instruments. It has two types, short term bonds and long-term bonds.
• Short term bondsare also known as Treasury Bill. Its maturity period is less than 1 year.
• Long Term Bondsare also known as Government Bonds or Dated Securities.
• Central Government issues both Government bonds and Dated Securities.
• In case of State Government either Government bonds or Dated Securities through RBI. It is called as State Development Loan. Its maturity period is greater than or equal to 1 year.
• G-sec is issued through auctions conducted by RBI, by an electronic platform called

E-Kuber. It is the Core banking Solution platform of RBI.

• RBI issues Indicative auction calendar, which contains details of calendar. It also contains information regarding amount of borrowing, maturity time period and time of auction.