The Reserve Bank of India (RBI) on Monday announced a three-pronged measure to address tight liquidity conditions in the banking system, just 10 days before the six-member Monetary Policy Committee’s decision on the repo rate.
These steps, according to bankers, are expected to inject approximately Rs 1.5 trillion into the system, reducing the likelihood of further cash reserve ratio (CRR) cuts. Following the policy review in December, the RBI had already lowered the CRR by 50 basis points, infusing Rs 1.16 trillion.
Experts believe that these steps towards boosting liquidity increase the likelihood of an interest rate cut in the February 5–7 monetary policy review.
The central bank announced open market operations (OMO) to purchase government securities worth Rs 60,000 crore in three tranches of Rs 20,000 crore each on January 30, February 13, and February 20. This is the first OMO purchase program announced by the RBI in almost five years, since March 26, 2020.
“By announcing an OMO calendar, we think the RBI has clearly indicated its preference for tools other than the CRR to inject durable liquidity,” stated economists at Standard Chartered Bank in a note.
Additionally, the RBI will hold a 56-day variable rate repo (VRR) auction for Rs 50,000 crore on February 7 to ensure liquidity coverage until the end of this financial year. The date of the reversal of these funds will be close to the April monetary policy review.
"RBI opens liquidity floodgates; announces Rs 60k crore OMO purchase plan!!!"