RBI takes steps to ease liquidity, to hold OMO buy auctions for INR 600 bln
This story was originally published at 19:01 IST on 27 January 2025
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--RBI: To conduct OMO purchase of INR 600 billion in 3 tranches
--RBI: To conduct 3 OMO buy auctions of INR 200 bln Jan 30, Feb 13, Feb 20
--RBI: To conduct 56-day VRR auction for INR 500 bln on Feb 7
--RBI: To hold dlr/rupee buy/sell swap auction of $5 bln for 6-mo tenor Fri
--RBI: To keep monitoring liquidity conditions, take measures as appropriate
NEW DELHI – The Reserve Bank of India will buy government bonds worth INR 600 billion via open market operation auctions in three tranches, the central bank said in a release announcing several measures to ease liquidity conditions. The RBI will hold the three OMO purchase auctions worth INR 200 billion on Thursday, Feb. 13, and Feb. 20.
The central bank will also hold a 56-day variable rate repo auction for INR 500 billion on Feb. 7, the RBI said. Further, the RBI will hold a dollar/rupee buy/sell swap auction of $5 billion for a tenor of six months on Friday.
The measures come at a time when economists and market players have asked the RBI to take steps to ease the tight liquidity conditions. Informist reported earlier on Monday that at a meeting last week, economists suggested the RBI to buy government bonds via open market operations, and hold dollar/rupee buy/sell swaps to ease the liquidity strain. Treasury heads of banks and primary dealers had made similar requests to the RBI earlier this month.
The net liquidity injected by the RBI--a proxy for systemic liquidity conditions--was INR 3.16 trillion on Thursday, the highest level since Jan. 24, 2024. Meanwhile, according to RBI data, the durable liquidity in the banking system was in a deficit INR 401.02 billion as of Jan. 10. This is the first time durable liquidity is in deficit since 2020. The RBI's continued intervention in the foreign exchange market has strained the systemic liquidity as it sold dollars to prevent the Indian rupee from declining sharply.
The central bank had already taken some measures to address the liquidity strain prior to Monday's announcement. The RBI bought gilts worth INR 101.75 billion through screen-based operations in the week ended Jan. 17, data from its weekly statistical supplement showed Friday. This was the largest gross weekly bond purchase since the RBI ended its government securities acquisition programme in September 2021.
The RBI has also been conducting dollar/rupee buy/sell swaps since December in the currency forwards market intermittently to offset the impact of its dollar sales in the spot market and avert pushing out rupee liquidity. This would be the first dollar/rupee buy/sell auction since April 2019. The OMO purchase auction will also be the first one since September 2021.
The RBI has also been conducting daily variable rate repo auctions this month in view of the tight liquidity conditions.
"The Reserve Bank will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions," the RBI said in a release Friday. End
Reported by Shubham Rana
Edited by Deepshikha Bhardwaj
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