RBI Measures to Infuse Liquidity
The Reserve Bank of India (RBI) has implemented measures to infuse durable liquidity into the banking system to aid the transmission of lower policy rates and minimize the impact of advance tax payments due on March 15.
Bond Purchases and Dollar/Rupee Swap
- The RBI will purchase bonds worth ₹1 lakh crore in two tranches.
- A dollar/rupee buy/sell swap auction of $10 billion for three years is planned to boost liquidity.
- Open market operations of ₹50,000 crore each are scheduled for March 12 and March 18.
- The swap auction on March 24 will inject approximately ₹86,950 crore, given the current exchange rate.
Liquidity Deficit
The daily average liquidity deficit was ₹1.66 lakh crore in February and around ₹94,000 crore in March, exacerbated by forex interventions.
Impact and Expectations
- Liquidity Decline: Liquidity tends to decrease post mid-March due to advance tax outflows.
- Foreign Exchange Interventions: Create additional uncertainties affecting liquidity.
- The RBI measures align with a 25-basis-point policy rate cut to foster economic growth.
- Surplus bank funds are being parked in the standing deposit facility.
Additional Measures and Economic Insights
- The RBI might further infuse liquidity, especially following Governor Malhotra's assurance of adequate support.
- State Development Loan Auctions: Lead to temporary liquidity outflows but eventually return with a lag.
- Borrowing Patterns: States tend to backload borrowings, whereas the Centre frontloads them.
- Weekly auction ranges differ, with states borrowing more in the March quarter compared to December.
