RBI to buy R8,000 crore bonds to ease liquidity

To cut rising losses of banks from the sharp depreciation in
 the rupee, the Reserve Bank of India moved in on Tuesday 
to ease up availability of cash in the markets.
The RBI will buy government bonds for Rs 8,000 crore on Friday and 
repeat it "as may be warranted by the evolving market conditions" .
The softening of stand has happened just days after Raghuram Rajan moved
 into the RBI as Officer on Special Duty ahead of his formal takeover 
as the Governor on September 5.
The Reserve bank of india has also permitted banks to cut down on the percentage
 of their holdings of government bonds which they need to mark to market. 
Because of lack of credit offtake, most banks have been investing in government 
bonds beyond what they were required to do.
But as the rupee dipped by 11.6 per cent against the dollar in July and August, 
the value of these bonds held by the banks too dipped. Public sector banks were
 staring at such mark-to-market loss of around Rs 50,000 crore.
Reserve bank of india has now permitted banks to retain 24.5 per cent of their 
holdings of such bonds without having to price them on mark-to-market basis 
instead of the current 23 per cent. They have also been allowed a one-time option for a reclassification of the bonds.
In a press release issued late night, the Reserve bank of india noted the moves aim 
to drain away the "unintended consequences of liquidity tightening steps that led 
to spike in long-end bond yields ... and adversely impact the flow of credit to the 
productive sectors of the economy".
Indranil Sengupta, chief economist Bank of America Merrill Lynch said these could 
cut back the losses of the banks and help them to make up for some of the damage
 from the volatility of the rupee in the past few weeks.