RBI injects ₹1.25L crore into financial system: Why it matters
What's the story
The Reserve Bank of India (RBI) has announced a major liquidity injection plan to ease the cash crunch in the banking system. The central bank will pump over ₹2 lakh crore into the financial system through a 90-day Variable Rate Repo (VRR) operation, dollar swaps, and open market purchases of government securities. This move comes as part of a proactive strategy to improve liquidity conditions and ensure smooth functioning of markets.
Strategy details
A closer look at RBI's liquidity measures
The RBI's liquidity measures include a 90-day Variable Rate Repo (VRR) operation of ₹25,000 crore on January 30. This will let banks borrow money at market-determined rates for a longer period than overnight liquidity windows. The central bank will also conduct an open market operation (OMO) purchase of government securities worth ₹1 lakh crore in two tranches of ₹50,000 crore each on February 5 and February 12.
Foreign exchange
Dollar liquidity move and market response
In a major dollar liquidity move, the RBI will hold a USD/INR buy-sell swap auction of $10 billion on February 4. The three-year tenor of the swap is likely to ease domestic liquidity pressure while controlling foreign exchange market volatility. Market participants have been keeping a close eye on liquidity conditions after sustained government cash balances, tax outflows and forex market operations tightened surplus liquidity in recent weeks.
Market stabilization
RBI's measures to stabilize liquidity and credit flow
The RBI's latest liquidity measures are aimed at improving durable liquidity, supporting credit flow, and stabilizing short-term money market rates. The central bank said detailed operational instructions for each of the measures will be issued separately. "The Reserve Bank will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions," the RBI said in a statement.