The Reserve Bank of India (RBI) on Wednesday announced liquidity injection measures, including open market operation (OMO) purchase of Government Securities (G-Secs) and US dollar/Indian rupee Buy/Sell swap, aggregating about ₹1.87 lakh crore to alleviate expected liquidity tightness in the banking system in the second half of this month.
These measures come after the central bank undertook a series of measures between January 30 and February 28 to infuse liquidity aggregating about ₹2.80 lakh crore.
As part of the latest measures to manage tight liquidity conditions, the RBI, on Wednesday, said it will conduct OMO purchase auction of G-Secs in two tranches of ₹50,000 crore each on March 12, 2025 (Wednesday), and March 18, 2025 (Tuesday).
Further, it will conduct a USD/INR Buy/Sell Swap auction of $10 billion for a tenor of three years on March 24, 2025 (Monday).
V Rama Chandra Reddy, Head – Treasury, Karur Vysya Bank, observed that outflows from the banking system will start from mid-March due to advance tax and goods and service tax payments, resulting in liquidity tightness of about ₹2.50 lakh crore. So, the aforementioned measures are aimed at alleviating this.
During the January 30 and February 28, 2025 period, RBI undertook liquidity infusion measures, including OMO purchase aggregating ₹1 lakh crore, two USD /INR Buy/Sell swap auctions (one for $5 billion of six months and another for $10 billion of three months), and a 56-day Variable Rate Repo (VRR) auction for ₹50,000 crore.
RBI said it will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions.
In his maiden bi-monthly monetary policy statement on February 7th, RBI Governor Sanjay Malhotra noted that after remaining in surplus from July to November 2024, system liquidity – as measured by the average net position under the liquidity adjustment facility (LAF) – turned into deficit during December 2024 and January 2025.
The drainage of liquidity is mainly attributed to advance tax payments in December 2024, capital outflows, forex operations and a significant pickup in currency in circulation in January this year, he said.
Malhotra also flagged the issue of some banks showing reluctance to onlend in the uncollateratised call money market; instead, they are passively parking funds with the Reserve Bank.
He urged the banks to actively trade among themselves in the uncollateratised call money market to make it deeper and vibrant for better signal extraction from the weighted average call money rate (WACR).
The Governor emphasised that the RBI is committed to provide sufficient system liquidity.
“We have taken a number of steps in this regard (including daily Variable Rate Repo auctions from 16th January 2025 and purchase of G-Secs through OMOs in January. In addition, a package of measures was announced on 27th January 2025 to inject durable liquidity through OMOs, forex buy-sell swap and a 56-day variable rate repo).
“We will continue to monitor the evolving liquidity and financial market conditions and proactively take appropriate measures to ensure orderly liquidity conditions,” Malhotra said in his statement.
