RBI Liquidity Measures
The Reserve Bank of India (RBI) announced several measures to infuse liquidity into the banking system, employing tools such as open market operations (OMOs), dollar-rupee buy-sell swaps, and long-term variable rate repo (VRR) operations.
Open Market Operations (OMOs)
- The RBI plans to purchase Government of India securities worth ₹1 trillion through OMOs in two tranches of ₹50,000 crore each, scheduled for February 5 and February 12.
- These OMOs are expected to soften the yield on the benchmark 10-year government bond by 2-3 basis points.
Variable Rate Repo (VRR) Operations
- A 90-day VRR auction for ₹25,000 crore is scheduled for January 30.
Dollar-Rupee Buy-Sell Swaps
- A $10 billion dollar-rupee buy-sell swap for three years is planned for February 4.
- This method is primarily used to extend the maturity profile of the RBI's forward book rather than to expand overall liquidity.
- The latest forward-book data revealed changes in net short-dollar positions, indicating shifts in contract tenors.
Current Liquidity and Future Plans
- The RBI noted a decrease in surplus liquidity to about ₹10,000 crore.
- Experts anticipate the possibility of additional OMOs worth ₹1 trillion by March-end, aiming to adjust liquidity to around 0.9% of net demand and time liabilities (NDTL).
Market Reactions and RBI's Position
- Bond market participants expect the OMO auctions to alleviate some pressure, although the market lacks significant positive cues.
- The RBI maintains that OMO purchases are strictly for liquidity management and not intended to influence yields.
