"Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, the Reserve Bank has decided to conduct purchase of the government securities under Open Market Operations for an aggregate amount of Rs 120 billion on October 25, 2018," RBI said in a release Tuesday.
The purchase will happen through multi-security auction using the multiple price method, it said.
As part of the OMOs, the RBI will purchase government securities maturing in 2020 bearing interest rate of 8.12 per cent, 2022 (8.20 per cent), 2024 (8.40 per cent), 2026 (6.97 per cent) and 2031 (6.68 percent).
This is part of the RBI's liquidity infusion of a total of Rs 360 billion this month, to be held in three phases, through purchase of government bonds in order to meet the festival season demand for funds.
The purchase to happen later this week is the last tranche, as the previous two were conducted in the second and third week of October.
RBI said it will decide on the quantum of purchase of individual securities and can accept offers for less than the aggregate amount of Rs 120 billion.
It also said that it can accept or reject any or all the offers either wholly or partially without assigning any reason.
The eligible participants can submit their offers in electronic format on the Reserve Bank of India Core Banking Solution (e-Kuber) system between 10.30 am and 12 noon on October 25, 2018.
"The result of the auction will be announced on the same day and payment to successful participants will be made during banking hours on October 26, 2018," the RBI said.
OMOs are the money market tools which can be used to either inject or drain liquidity from the system. It is employed to adjust rupee liquidity conditions in the market on a durable basis.
If there is excess liquidity, the RBI resorts to sale of securities and sucks out the rupee liquidity. Similarly, when the liquidity conditions are tight, it buys securities from the market, thereby releasing money into the market.
Earlier in September, both RBI and Sebi had made announcements that they were closely monitoring activities in the financial markets and ready to take appropriate actions, if required, following a sharp meltdown in equity and debt markets.
The capital market witnessed roil following the IL&FS group firm loan defaults, sending the stock prices of housing finance as well as non-banking financial companies sharply down on concerns of contagion effect.