Bond market individuals count on that the Reserve Financial institution of India (RBI) may resort to devices like open market operations (OMO) and overseas alternate interventions to empty extra liquidity from the banking system. Surplus liquidity within the banking system stood at Rs 2.78 trillion on Tuesday, in response to the most recent RBI information.
“Regardless of GST outflows, the excess liquidity stays very massive, I feel the RBI may use different instruments like OMO to empty sturdy liquidity from the system,” mentioned the treasury head at a personal financial institution.
The six-member financial coverage committee (MPC) will announce the assessment of the coverage on Thursday. Whereas a establishment on each charges and stance is extensively anticipated, the market awaits the central financial institution’s commentary on the present liquidity state of affairs.
The RBI has been conducting variable price reverse repos (VRRR) auctions to be able to drain extra liquidity.
On Tuesday, the central financial institution carried out two VRRR auctions. On the first three-day VRRR public sale, banks parked Rs 23,803 crore in opposition to a notified quantity of Rs 75,000 crore. On the second in a single day VRRR public sale, banks parked Rs 19,954 crore in opposition to a notified quantity of Rs 50,000 crore. The RBI didn’t conduct any public sale on Wednesday.
“The RBI has been conducting OMO gross sales in small quantities, so it’s unlikely they’ll announce official auctions,” mentioned the treasury head at one other personal financial institution. “Given the present international state of affairs, the RBI may additionally resolve to maintain the liquidity in surplus,” he added.
A bit of the market additionally believes that the RBI may reiterate that they’ve a number of devices at their disposal for liquidity administration. Nevertheless, they won’t make an official announcement as it’d misguide the market.
OMOs are primarily a liquidity administration instrument utilized by the RBI. By buying bonds, the RBI injects cash into the banking system, thereby growing liquidity. Conversely, by promoting bonds, the RBI removes cash from the system, lowering liquidity.
Through the financial coverage announcement of October 2023, RBI governor Shaktikanta Das talked about the potential of OMO gross sales, which spooked the bond market. Nevertheless, such auctions weren’t carried out.
First Printed: Aug 07 2024 | 8:20 PM IST
