RBI announces over USD 21 Billion Liquidity Infusion to support growth | Current Affairs | Vision IAS
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RBI announces over USD 21 Billion Liquidity Infusion to support growth

Posted 06 Mar 2025

2 min read

This initiative comprises two Open Market Operations (OMOs) purchase of Government Securities (G-Secs) and one USD/INR Buy/Sell Swap auction.

About Open Market Operations (OMO)

  • Under this, RBI buys or sells G-Secs in the open market to influence the money supply and interest rates within an economy.
  • While purchase of G-Secs in the open market increases the high powered money (H), an open market sale of G-Secs decreases the same by an equal amount.
    • High-powered money is the sum of commercial bank reserves and currency (notes and coins) held by the Public.

About US Dollar-Indian Rupee swap auctions

  • Under it, a bank shall sell US dollars to the RBI and simultaneously agree to buy the same amount of US dollars at the end of the swap period.
  • It is done through an auction under which each bank quotes their swap rates (forward premium or discount) and the lowest bidder is accepted first under the programme.

Need for Liquidity Infusion

  • Banking system has experienced liquidity challenges since November 2024, due to factors such as tax outflows, significant foreign portfolio investor selling in Indian equities, RBI intervention in forex markets, etc.
  • Comfortable liquidity conditions typically help in better pass-through of loan rates, ensure policy transmission, and push economic growth.

Other Liquidity Infusion Instruments 

  • Quantitative tools:  Liquidity Adjustment Facility (Repo and Reverse repo), Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Bank Rate, etc.
  • Qualitative tools: Credit Rationing, Moral Suasion, Selective Credit Control (SCC), Margin Requirement, etc.
  • Tags :
  • Open Market Operations
  • Liquidity Adjustment Facility
  • High-Powered Money
  • Cash Reserve Ratio
  • Statutory Liquidity Ratio
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