RBI Unveils Over $23 Billion Liquidity Boost to Support Banking System
The Reserve Bank of India (RBI) on Friday announced a set of measures to inject more than $23 billion into the banking system, using a mix of government bond purchases, foreign exchange swaps and repo operations. Under Governor Sanjay Malhotra, the central bank has accelerated liquidity infusion over the past year to strengthen the transmission of rate cuts and to offset the liquidity impact of its market interventions aimed at supporting the rupee.
As part of the plan, the RBI will conduct a 90-day variable rate repo (VRR) of 250 billion rupees on January 30, marking its first cash infusion through a 90-day VRR. This will be followed by a three-year $10 billion USD/INR buy/sell swap auction on February 4. Additionally, the RBI will purchase 1 trillion rupees of government bonds in two tranches on February 5 and February 12, continuing its aggressive bond buying spree after purchasing 3 trillion rupees in December–January, taking the fiscal-year total to a record 5.7 trillion rupees.
Economists said the durable liquidity steps aim to restore system liquidity to the RBI’s target range of 0.6% to 1% of net demand and time liabilities, while the VRR is expected to help keep overnight rates stable. The measures come as rising government borrowing has pushed bond yields higher, while the rupee slipped to a record low of 91.9650 per dollar amid foreign portfolio outflows and equity weakness. Market participants said the announcement was widely anticipated and may help ease pressure on bond yields in the near term.
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