The advantage for the government when there is RBI intervention is two-fold. First, there is direct absorption of the debt by RBI, which won’t affect the market as the supply of paper remains unchanged. Therefore, there is no shock when such a transaction is undertaken. Second, there is a circular movement of money. Suppose RBI lends Rs 1 lakh crore to the government (the Centre or states) at, say, 6% per annum.
from The Financial Express https://ift.tt/337TpKF
Sunday, 6 September 2020
Advantages of enlarging the balance-sheet of RBI
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