RBI To Inject Nearly Rs 3 Trillion Via Omos, Forex Swap To Ease Liquidity Tightness

(MENAFN- KNN India) New Delhi, Dec 24 (KNN) The Reserve Bank of India (RBI) has announced a fresh round of liquidity infusion measures through open market operations (OMOs) and a foreign exchange buy-sell swap, under which it will inject close to Rs 3 trillion into the banking system to ease tightening liquidity conditions.

The central bank said it will purchase Government of India securities worth Rs 2 trillion through OMOs in four tranches of Rs 50,000 crore each, scheduled for December 29, January 5, January 12 and January 22.

In addition, the RBI will conduct a three-year USD-INR buy-sell swap of USD 10 billion on January 13.

Addressing Forex-Driven Liquidity Pressures

Analysts said the RBI's move is primarily aimed at offsetting liquidity drained due to recent dollar sales, along with seasonal factors such as advance tax outflows and a rise in currency in circulation.

The central bank intervened in the forex market last week to arrest rupee depreciation amid trade deal uncertainty and FPI outflows. While the rupee strengthened to about 89 per dollar, the move tightened rupee liquidity.

Economists said further RBI action will hinge on liquidity conditions and the need for more forex intervention. HDFC Bank's Sakshi Gupta said the current injection appears adequate, but more measures may follow in Q4 if pressures persist.

RBI infused about Rs 1.45 trillion in December via OMOs and forex swaps, and Rs 9.5 trillion in the first half of the year, moving system liquidity to surplus by end-March 2025. Market participants said OMOs in more liquid bonds would improve participation and price discovery.

Impact on Bond Market

Despite liquidity measures and a 25 bps repo cut in early December, bond yields have risen, with the 10-year yield up about 12 bps, showing weak transmission. Analysts said OMOs are now the RBI's main tool to offset forex-driven liquidity tightening.

Gaura Sen Gupta, chief economist, IDFC First Bank, said the scale of OMO purchases could help improve demand-supply dynamics in the bond market, while the dollar swap would address both rupee liquidity and dollar supply pressures.

Fiscal Concerns Persist

Some economists cautioned that a sustained decline in bond yields may be limited due to emerging fiscal concerns. Central government bond redemptions are estimated at around Rs 5.5 trillion next financial year, with additional borrowing pressure likely from states.

“The latest measures largely offset liquidity drained by forex intervention and are unlikely to materially lower bond yields,” said Indranil Pan, chief economist, YES Bank, pointing to elevated bond supply as a continuing risk factor.

(KNN Bureau)

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