The Reserve Bank of India has announced new measures to ease liquidity pressures amid advance tax outflows this month. The RBI has unveiled its latest open market operations (OMO) of ₹1 trillion. Market participants said that the RBI’s announced OMO purchase is in focus for injecting liquidity into the banking system to mitigate the liquidity deficit in the foreign exchange market. In addition, the central bank’s recent intervention in the foreign exchange market is likely to drain its rupee liquidity.
As per the latest data, the net liquidity in the banking system was at a surplus of ₹ 3.02 trillion on Thursday. Afterwards, the Central Bank has declared that the government securities purchases will be conducted in 2 tranches of ₹50000 crore each. According to VRC Reddy, treasury head at Karur Vysya Bank, the RBI is managing a liquidity deficit due to advance tax and GST outflows, which has caused the durable liquidity. However, this durable liquidity has also been strained by the maturity of buy/sell swaps, and the Reserve Bank of India has sustained intervention in the currency to manage the unpredictable price fluctuations arising from the West Asia crisis.
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As the Reserve Bank of India and other central banks have tilted towards rate cuts to stimulate the impact of lower policy rates. Anshul Chandak, head of treasury at RBL Bank, has concluded that the central bank tries to prevent yields from rising too sharply, and market participants are too afraid that if the RBI stops buying, yields could rise and move sharply. Now traders expect the yields to stay sensitive to global developments while the RBI continues liquidity operations to stabilise the bond market.
