RBI to inject over Rs 2 lakh crore in banking system to ease liquidity

Mumbai, Jan 23 : The Reserve Bank of India (RBI) on Friday announced a series of liquidity-enhancing measures that will pump in more than Rs 2 lakh crore into the banking system to ease liquidity pressure.

The RBI said it will use a combination of open market bond purchases, a foreign exchange swap, and a variable rate repo operation to ease liquidity conditions in the financial system. The steps are being undertaken following a review of current liquidity and financial conditions.

As part of the measures, the central bank will conduct a 90-day variable rate repo (VRR) operation for an amount of Rs 25,000 crore on January 30, allowing banks to borrow funds at market-determined rates against collateral assets to be provided by them. A VRR is a tool where banks borrow short-term funds through an auction, with the interest rate determined by market bids, not fixed in advance.

The central bank will also carry out a dollar-rupee buy/sell swap auction of $10 billion for a tenor of three years on February 4. Under this programme, the banks will sell dollars to the RBI for rupees and simultaneously agree to buy those dollars back later at a fixed forward rate. This effectively means the RBI borrows rupees for a period while managing exchange rate risk and boosting market liquidity without permanently altering forex reserves.

Besides, the Reserve Bank will purchase government securities for an aggregate amount of Rs 1 lakh crore via open market operations (OMO). This will be done in two tranches of Rs 50,000 crore each, which will be held on February 5 and February 12.

According to the RBI statement, detailed instructions for each operation that has been announced will be issued separately.

The apex bank further stated that it will continue to monitor the evolving liquidity and market situation and take measures as appropriate to ensure orderly liquidity conditions.