The Reserve Bank of India (RBI) on Tuesday said it would inject Rs 10,000 crore into the system through the purchase of government securities on December 6 to increase liquidity.
The purchase will be made through open market operations (OMOs).
“Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, the Reserve Bank has decided to conduct the purchase of government securities under open market operations for an aggregate amount of Rs 10,000 crore on December 6, 2018 (Thursday),” the central bank said.
The OMO operation will help ease tight liquidity situation triggered by a series of defaults by group companies of IL&FS.
The eligible participants should submit their offers in electronic format on the RBI Core Banking Solution (E-Kuber) system on December 6.
The result of the auction will be announced on the same day and payment to successful participants will be made on the following day.
The RBI also announced the auction of a 12-day Government of India Cash Management Bill (CMB). The amount notified for the auction is Rs 30,000 crore.
Meanwhile, Bank of America Merrill Lynch (BofAML) last month had said that the central bank may infuse another Rs 1.6 lakh crore via OMO in March quarter to tide over the banking liquidity crisis.
The global investment firm also said the apex bank’s decision to infuse Rs 40,000 crore through OMOs in December may not be adequate to defuse the current liquidity shortfall, which is as high as Rs 1,00,000 crore.
The money market deficit is already running at a high Rs 1,00,000 crore, and after advance tax outflows, it could climb to Rs 1,40,000 crore in December.
BofAML said it does not rule out the possibility of the RBI cutting the cash reserve ratio (CRR) by 1% if foreign portfolio investors (FPI) flows remain weak. “This will release about Rs 1,20,000 crore into the system and bring the money market to neutral for now,” the bank said in a report said.
INFUSING LIQUIDITY
- The OMO operation will help ease tight liquidity situation triggered by a series of defaults by group companies of IL&FS
- The result of the auction will be announced on the same day and payment to successful participants will be made on the following day
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