RBI Announces Rs 1.75 Lakh Crore Liquidity Management Measures
The Reserve Bank of India (RBI) has announced a dual-pronged strategy to absorb excess cash from the banking system, aiming to stabilise short-term interest rates and align liquidity with its monetary policy stance.
Key Takeaways
- OMO Sales: RBI will sell government securities worth Rs 1 lakh crore via Open Market Operations (OMOs).
- New Repo Window: A new 7-day Variable Rate Repo (VRR) auction of Rs 75,000 crore will be conducted on Monday.
- Objective: To absorb surplus liquidity, prevent undue volatility in money markets, and support the monetary policy stance.
Details of the Liquidity Measures
The central bank will sell sovereign bonds worth Rs 1 lakh crore over the coming weeks through OMOs. This is a direct move to withdraw persistent surplus liquidity that has been prevalent for several months.
Simultaneously, the RBI introduced a new 7-day variable rate repo (VRR) auction worth Rs 75,000 crore. The auction is scheduled for Monday, providing banks with funds for one week. This tool offers the RBI finer control over short-term rates.
Rationale Behind the Move
The RBI stated these actions are necessary to ensure liquidity conditions remain consistent with its monetary policy stance. A prolonged liquidity surplus exerts downward pressure on short-term interest rates, which can disrupt monetary transmission.
The central bank’s measures are pre-emptive, aimed at curbing potential volatility in the money market. The RBI has committed to continuously monitoring the situation and taking further steps as required.
The central bank said it will continue to monitor liquidity conditions and take appropriate action as needed.
