RBI Introduces Measures To Address Liquidity Deficit In Banking System

The Reserve Bank of India (RBI) announced a series of special measures on Monday to address the banking system’s liquidity deficit. The central bank’s initiatives include open market operations (OMO) purchases of government bonds, longer-tenure variable rate repo (VRR) auctions, and a dollar-rupee buy-sell swap auction. Cumulatively, these measures are expected to inject approximately ₹1.5 lakh crore into the banking system, helping to stabilise liquidity conditions and support economic activity.

Open Market Operations and Repo Auctions

To address the current shortfall, the RBI will conduct OMO purchase auctions worth ₹60,000 crore in three tranches of ₹20,000 crore each. These auctions will take place on January 30, February 13, and February 20, allowing the central bank to infuse durable liquidity into the system. Additionally, a 56-day variable rate repo auction worth ₹50,000 crore is scheduled for February 7. This comes on top of the daily VRR auction of ₹50,000 crore announced on January 15.

As of January 24, the banking system faced a significant liquidity deficit of ₹2.82 lakh crore, up from ₹1.04 lakh crore at the start of the month. The RBI’s measures aim to ease these conditions in the short to medium term, providing relief to banks and financial institutions operating under tight liquidity circumstances.

Dollar-Rupee Swap Auction

Lastly, To stabilise the foreign exchange market and further enhance liquidity, the RBI will conduct a dollar-rupee buy-sell swap auction worth $5 billion for a tenure of six months on January 31. This move is expected to help balance dollar inflows and outflows while reducing the strain on the liquidity deficit. The RBI stated that detailed instructions for each operation will be issued separately.

Conclusion

The RBI remains committed to monitoring evolving liquidity and market conditions and is ready to implement additional measures if necessary. Analysts note that while OMO purchases provide long-term liquidity, repo auctions and forex interventions address short-term needs. These measures collectively aim to bring the banking system’s liquidity back to manageable levels in the coming months.

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