RBI Doubles Open Market Operation Purchase Auction To Boost Liquidity
RBI's increased open market operation purchase auction, now at Rs 40,000 crore to address current liquidity conditions.
The Reserve Bank of India has decided to conduct open market operation purchase auctions of government bonds worth Rs 40,000 crore as compared to Rs 20,000 crore on Thursday in view of the current liquidity conditions, the central bank said in a media statement.
This is part of the RBI's special liquidity announcement last month, wherein it decided to infuse liquidity worth Rs 60,000 crore through OMO purchases in three tranches of Rs 20,000 crore each.
The RBI has already conducted the first auction on Jan. 30. For the upcoming auction on Thursday, the central bank has revised the amount upwards to buy five gilts worth Rs 40,000 crore. The third auction of Rs 20,000 crore will be held on Feb. 20.
Other notified details of the OMO purchases auction, which will be held on Thursday, remain unchanged, the central bank said.
As of Feb. 7, liquidity in the banking system remained in the deficit of Rs 1.07 lakh crore.
Last week, India's Monetary Policy Committee, led by newly appointed RBI Governor Sanjay Malhotra, cut the benchmark repo rate by 25 basis points but disappointed market participants with no new explicit announcement on liquidity measures.
The January liquidity measures are yet to be completely implemented, and near-term system liquidity deficit, including durable liquidity, appears comfortable compared to January 2025 highs, Madhavi Arora, lead economist at Emkay, said.
Policymakers may also want to keep sufficient tools in reserve and not use them all in one go, especially as global dynamics are very fluid and tricky, implying the need to ensure enough tools to react in times of stress, she added.
"We expect more OMOs in primary/secondary markets, followed by VRRs and more FX swaps, especially as the RBI’s forward book is heavy with large near-term maturity," she added.
