RBI to sell government securities worth ₹25,000cr on October 13
What's the story
The Reserve Bank of India (RBI) will conduct an open market operation (OMO) sale auction of government securities worth ₹25,000 crore on October 13. The central bank has announced six different government securities for the auction. The maturities of these securities range from March 2030 to April 2034. The RBI has not specified individual sale amounts for each security and retains discretion over how much of each will be sold.
Liquidity control
Banking system's liquidity in surplus by ₹3.88L crore
OMO sales are a way for the central bank to sell government securities and withdraw liquidity from the banking system.
As of October 8, the banking system's liquidity is estimated to be in surplus by around ₹3.88 lakh crore.
The RBI has been conducting various variable rate reverse repo (VRRR) auctions over the last two months to absorb this excess liquidity and align overnight money market rates with its repo rate.
Liquidity strategy
Excess liquidity due to FCNR(B) deposit mobilization
The RBI's move comes as the banking system was flooded with liquidity due to heavy mobilization of FCNR(B) deposits by banks.
This brought foreign currency into the system, while subsequent swaps with the RBI provided rupee liquidity to banks.
Other factors such as month-end government expenditure, including salary and pension payments, have also contributed to the current surplus in the banking system.
Absorption
RBI's plan to absorb excess liquidity
RBI Governor Sanjay Malhotra had said on October 6 that the huge liquidity in the banking system will be absorbed within this financial year through currency leakage, RBI's liquidity operations, and banks' reserve requirements.
The central bank has also been using VRRR auctions to absorb surplus liquidity.
The average daily surplus under LAF was ₹5.9 lakh crore since the last monetary policy meeting in August, according to latest RBI data.