RBI Opens Liquidity Tap, Rate Cut in Sight

Forex, money market operations to infuse ₹1.5 tn into system

- Gopika Gopakumar

Relief arrived for India's parched banking system on Monday as the central bank rolled out measures to pump up liquidity, setting the stage for a potential interest rate cut next week.

The Reserve Bank of India (RBI) announced a set of forex and money market measures that will collectively infuse ₹1.5 trillion over time, amid a clamour for liquidity support.

The central bank said it will purchase government securities (G-Secs) worth ₹60,000 crore through open market operations (OMOs) in three tranches of ₹20,000 crore each.

Through this measure, RBI will purchase G-Secs from the open market and inject liquidity into the system. The OMO auctions will take place on 30 January, and 13 and 20 February.

It will also conduct a 56-day variable rate repo (VRR) auction of ₹50,000 crore on 7 February and dollar-rupee sell swap auction of $5 billion for a tenor of six months on 31 January.

The VRR aims to ensure sufficient liquidity to meet banks' needs till 31 March.

Under the dollar-rupee swap, RBI will buy dollars from banks in exchange for rupees, which will be released into the system.

After six months, RBI will sell the dollars.