RBI steps to promote liquidity: RBI is an important decision to increase liquidity; Rupee. 1.5 lakh crores
Is the step to promote RBI liquidity?
What did RBI announce?
RBI has announced three measures to increase liquidity in the system.
1. First, the central bank will buy government securities worth Rs 60,000 crore through Omo. RBI will buy government securities in three installments for Rs 20,000 crore. Buying J-search from the open market and Rs. 60 thousand quotes will be put. The auction will be held on 30 January, 13 February and 20 February.
2. RBI will run a 56 -day variable repo rate (VRR) auction on 7 February. This will provide about Rs 50,000 crore cash in the market.
3. The RBI will organize a $ 5 billion-rupay sales exchange auction on 31 January for six months. Under this conversion, RBI will buy dollars from banks instead of rupees and leave them in the system. RBI sells this dollar after six months.
How can these actions help?
These measures are expected to add 1.5 trillion liquidity to the system over time. They provide the most essential durable liquidity that is the biggest demand of bankers. However, this may not be enough to fill the 3 trillion liquidity gap in the system. However, RBI has also conducted an open market operation last week – Omos, Scheduled OMO calendar has been assured in the market. The purpose of the VRR auction is to ensure that the needs of banks are in line with the needs of banks by 31 March. Economists stated that dollar-dollar conversion will help the upcoming giant, slight position of the RBI to affect the front and spot FX market.
What was liquidity before actions?
The banking system, which was in the surplus from July to 24 November, went away from mid -2024 to reduce more than Rs 1 trillion. The average fiscal deficit in the Inter -Bank market has crossed Rs 3.3 trillion last week due to heavy goods and service taxes. The Central Bank has been interfering in the foreign exchange market to reduce the instability of rupee in the last two years. However, in September, in September, local currency declined with foreign portfolio investors and collected dollars to sell and repatriation Indian shares aggressively. In late September, the Forex Reserve fell from $ 70 billion to $ 70 billion.
With the fall of the rupee ..
The RBI sold dollars in the market and sucked the liquidity of the rupee from the system. It has deteriorated due to the recession of government spending. Lack of liquidity has increased since the sudden fall since December with the cash reserve ratio (CRR) and daily VRRS cuttings in January. Banks have reduced CRR by 50 basis points, which are the percentage of deposits in RBI.
Are these actions ahead of rate reduction?
Bankers and economists say that RBI’s action on liquidity is a clear indication of intentions and the field bank is preparing for a decrease in interest rates. He said that the insertion of inter -bank liquidity was a predecessor for the policy trans mission. Some want to cut 50 basis points in CRR. On the day of the announcement of monetary policy, RBI has set a time of 56 days of VRR. It also represents the risk of deficiency. The next meeting of RBI (RBI) Monetary Policy Committee will be held on 5-7 February 2025. However, some analysts say inflation is reaching 5 percent and the rupee is likely to postpone the rates. They expect RBI to predict the impact of US President Donald Trump’s functions before deciding on rate cuts.
