RBI Measures to Inject Liquidity
The Reserve Bank of India (RBI) announced several strategies to enhance liquidity in the financial system.
Key Measures
- Bond Purchase: A ₹60,000-crore bond purchase.
- Variable Repo Rate Auction: A 56-day auction amounting to ₹50,000 crore.
- USD/Rupee Swap Auction: A $5-billion buy/sell swap for six months.
Expected Impact
- Collectively, these measures are estimated to inject ₹1.5 lakh crore into the banking system in phases.
- The banking system experienced a peak gap of ₹3.15 lakh crore on January 23, with an average daily deficit of ₹1.96 lakh crore.
- Yields on 10-year government bonds, which were at a three-year low of 6.64%, might decrease further.
Market Reactions
- Economists predict these actions could lead to a rate reduction in February.
- The RBI's rate-setting committee will convene from February 5 to 7.
- Treasury heads have advised that merely cutting policy rates without liquidity infusion would be ineffective.
- Estimates suggest the liquidity deficit could peak at ₹4 lakh crore by the end of March without further action.
Future Projections
- Three bond purchases under open market operations (OMO) have been scheduled for Rs 20,000 crore each on January 30, February 13, and February 20.
- A 56-day VRR auction on February 7 for Rs 50,000 crore is planned.
- A USD/Rupee buy/sell swap auction of $5 billion for six months is set for January 31.
Analysts' Opinions
- Economists like Madhavi Arora suggest these measures may indirectly reduce rates by easing liquidity.
- Kanika Pasrisha highlights concerns about foreign-exchange outflows of ₹5 lakh crore since September-end and rising liquidity deficits.
