RBI Announces Rs 60,000 Crore OMO to Ease Liquidity Crunch

Key Measures to Inject Liquidity

The Reserve Bank of India (RBI) announced a series of measures on January 27, 2025, to address the liquidity crunch in the banking system. These measures include:

1. Open Market Operations (OMO): The RBI will conduct a Rs 60,000 crore OMO purchase in three tranches.
2. Variable Rate Repo (VRR) Auction: A Rs 50,000 crore VRR auction is planned for February 7, 2025.
3. USD/INR Buy/Sell Swap Auction: A $5 billion swap auction will be conducted for a tenor of six months on January 31, 2025.

OMO Purchase Details

The OMO purchases, aimed at injecting money into the economy, will be conducted in three tranches of Rs 20,000 crore each. The scheduled dates for the OMO auctions are:

• January 30, 2025
• February 13, 2025
• February 20, 2025

On January 30, the RBI will purchase specific government securities, including:

• 7.59% GS 2029
• 7.18% GS 2033
• 7.10% GS 2034
• 6.79% GS 2034
• 7.18% GS 2037

The auction will take place between 10:30 am and 11:30 am and will use the multiple price method.

VRR Auction and FX Swap

In addition to the OMOs, the RBI will hold a 56-day VRR auction worth Rs 50,000 crore on February 7, 2025. Earlier this month, the RBI conducted six VRR auctions to provide liquidity support to banks.

On January 31, 2025, the central bank will also conduct a USD/INR buy/sell swap auction worth $5 billion to address foreign exchange market dynamics.

Liquidity Deficit and RBI’s Response

The banking system is currently facing a significant liquidity deficit of approximately Rs 3.13 lakh crore. This shortage is attributed to several factors, including:

• Costly deposits straining banks.
• Foreign Portfolio Investor (FPI) dollar outflows from Indian equity markets.
• RBI’s intervention to stabilize the rupee amid aggressive dollar buying by foreign investors.

As of January 14, the liquidity deficit in the banking system stood at Rs 2.09 lakh crore, according to RBI data.

Measures to Stabilize Liquidity

The RBI has reiterated its commitment to ensuring orderly liquidity conditions. These steps come ahead of the next Monetary Policy Committee (MPC) meeting, scheduled for February 5, 2025.

Expert Insights

Earlier in January, a report from Nomura’s Asia Insights recommended more VRRs, buy/sell swaps, and OMO purchases to address tightening INR liquidity. These measures align with the report’s suggestions to manage the systemic liquidity challenges effectively.