RBI's Bond Purchase and Liquidity Measures
The Reserve Bank of India (RBI) has increased its bond purchases to ₹40,000 crore, up from the previously announced ₹20,000 crore, reflecting an assessment of the current and evolving liquidity conditions.
Current Liquidity Conditions
- The banking system faced a liquidity deficit of ₹1.32 lakh crore as of February 9.
- The daily average liquidity deficit for the month was ₹1.05 lakh crore.
Expected Liquidity Support
- Market participants anticipate additional support through:
- Variable Rate Repo (VRR) auctions
- Open Market Operations (OMO) purchases (both planned and unplanned)
- Foreign exchange swaps
RBI's Liquidity Infusion Strategy
- The RBI is projected to infuse about ₹3 lakh crore into system liquidity over the year.
- This infusion is in addition to the measures already undertaken to ensure a mild surplus in system liquidity.
- Previously, a ₹1.5 lakh crore liquidity boost was provided in late January.
- Screen-based OMOs of ₹59,000 crore were executed last month.
- Liquidity deficits peaked at ₹3.15 lakh crore in late January but improved to a deficit of ₹38,215.7 crore by February 4.
Impact on Government Bond Yields
- Yields on the 10-year benchmark government bond increased by approximately five basis points after no new liquidity measures were announced.
- The 10-year yield closed at 6.71% on Monday, compared to 6.65% on Thursday before the monetary policy announcement, amid expectations of changes in stance, additional liquidity measures, and a rate cut.
