RBI To Boost Liquidity With Fresh Rs 1 Lakh Crore OMO, $10 Billion Forex Swap
RBI’s liquidity measures include OMO purchase auctions of government securities and a dollar-rupee forex swap, with detailed instructions to be issued separately.
The Reserve Bank of India said on Monday that it will inject further liquidity into the banking system by conducting open market operation purchase auctions and long-tenure dollar-rupee buy/sell swaps.
The RBI will conduct OMO purchases of government securities worth Rs 1 lakh crore in two tranches of Rs 50,000 crore each. The first auction will be held on March 12 and the second by March 18.
Further, the central bank has also decided to hold a dollar-rupee buy/sell swap auction of $10 billion for 36 months to be held on March 24.
This is the second such large auction by the RBI recently. On Feb. 28, the RBI conducted long-term dollar-rupee buy-sell swap auctions worth $10 billion for three years.
The central bank said that it will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions. It will also issue detailed instructions for each operation separately.
This move has come as the central bank has been trying to infuse durable and transient liquidity in the banking system by various market intervention tools such as conducting OMO purchases, longer-term and short-term variable rate repo auctions, and dollar-rupee buy/sell swaps.
As of March 4, liquidity in the banking system was in deficit of Rs 20,416 crore.
So far, the RBI has resorted to several measures to inject liquidity into the system with several variable rate repo auctions of varying tenors, a series of daily VRR auctions since Jan. 16, jumbo dollar-rupee swaps, and unrestricted OMOs. These are apart from a 25-basis-point cut announced in the repo rate last month.
The liquidity situation has eased to some extent, with daily liquidity deficit reducing in March. But SBI Research believes that system liquidity will remain tight due to year-end tax outflows.
"Going by repo auction figures, it is evident that RBI is also using more than what GoI cash balances is available for VRR auctions balances and thus the residual amount has been out of RBI’s liquidity from other (own) sources," it said in a report.
