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RBI introduces measures to boost liquidity in banking system

RBI introduces measures to boost liquidity in banking system

RBI introduces measures to boost liquidity in banking system
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27 Jan 2025 8:53 PM IST

India's central bank, the Reserve Bank of India (RBI), has unveiled a series of steps to ease liquidity pressures in the banking system, including bond purchases and currency swaps.

In its announcement on Monday, the RBI stated it will conduct Open Market Operation (OMO) purchase auctions of government securities worth ₹60,000 crore ($6.96 billion) in three tranches. Additionally, a 56-day variable rate repo auction for ₹50,000 crore is scheduled for February 7.

The RBI also plans to execute a USD/INR buy/sell swap auction for $5 billion with a six-month tenor on January 31.

These measures come as India’s banking system faces a significant liquidity deficit, which surged to a one-year high in the fortnight ending January 24. Data from the RBI shows the average daily liquidity shortfall during this period was ₹2.39 trillion.

The central bank emphasized its commitment to maintaining orderly liquidity conditions and pledged to monitor market trends closely. "The RBI will continue to evaluate evolving liquidity and market conditions and take appropriate steps as needed," the statement read.

Vivek Kumar, an economist at QuantEco Research, commented that the measures are likely to exert a "moderating influence" on bond yields, providing some relief to the financial markets.

These steps are expected to bolster the banking system’s liquidity and stabilize market dynamics in the coming weeks.

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