RBI will conduct an open market purchase of Government Securities (G-Sec) of ₹2 lakh crore and a USD/INR 3-year Buy/Sell Swap auction of USD 10 billion.
- Open Market Operations (OMOs) are the market operations conducted by the RBI by way of sale or purchase of G-Secs to/ from the market with an objective to adjust the rupee liquidity conditions in the market.
- E.g. In case of excess liquidity in the market, RBI resorts to sale of securities thereby sucking out the rupee liquidity.
- USD/INR Buy/sell Swaps: Central bank purchases dollars (US dollars or USD) from banks in exchange for Indian Rupees (INR) and then immediately enters into an opposite agreement with banks agreeing to sell dollars at a later date.
- Authorised Dealers (ADs) Category 1 banks are the eligible entities to participate in the auction.
Need for Liquidity Infusion
- RBI’s Foreign Exchange Market Interventions: When the rupee depreciates sharply, the RBI sells US dollars from its forex reserves.
- Banks pay rupees to the RBI to buy dollars, tightening systemic liquidity.
- Strong Credit Growth: When banks lend, excess reserves with banks decline.
- Other reasons: Such as Advance tax outflows, significant foreign portfolio investors selling in Indian equities, etc.
Other Liquidity Infusion Instruments
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