The Reserve Bank of India (RBI) has announced new steps to ease the tight liquidity (cash) situation in banks. It will carry out OMO and Rupee-Dollar swaps totaling ₹1.9 trillion to boost liquidity in India.
Open Market Operation (OMO) Purchases:
RBI will buy ₹1 trillion worth of government bonds in two phases:
₹50,000 crore on March 12
₹50,000 crore on March 18
USD/INR Swap Auction:
RBI will also conduct a currency swap auction of $10 billion on March 24, for a period of 36 months.
Reason for the Measures:
These actions are taken due to a liquidity deficit in the banking system. The deficit was caused by factors like:
– Tax payments
– Intervention in the foreign exchange market
– Changes in capital flows
Current Liquidity Situation:
November 2024: ₹1.35 trillion surplus
December 2024: ₹65,000 crore deficit
January 2025: ₹2.1 trillion deficit
February 2025: ₹1.6 trillion deficit
SBI Suggestions to boost liquidity:
– SBI suggests revising the current liquidity management system.
– It proposes replacing the Weighted Average Call Rate (WACR) with a new policy rate, as WACR doesn’t help much.
– SBI suggests that Cash Reserve Ratio (CRR) could be used more as a regulatory tool for managing liquidity, instead of just a liquidity tool.
Previous RBI Measures:
On January 27, RBI took steps to inject liquidity, including purchasing ₹60,000 crore of government securities and conducting a $5 billion swap.
In February, RBI also conducted a $10 billion swap to address long-term liquidity needs.