RBI bond purchases: RBI doubles bond purchases to Rs 40,000 crore

The liquidity deficit in the banking system stood at ₹1.32 lakh crore as of February 9 and had a daily average deficit of ₹1.05 lakh crore during the month.

Market participants are expecting additional liquidity support via variable rate repo (VRR) auctions and open market operations (OMO) purchases, both planned and unplanned, along with foreign exchange swaps, as the RBI’s forward book is heavy with large near-term maturity, economists said.

“Our estimates show that the RBI would need to infuse about ₹3 lakh crore in system liquidity during the year, over and above the measures already undertaken. This will ensure system liquidity is in a mild surplus on a consistent basis,” said Gaura Sengupta, chief economist at IDFC First Bank.

Agencies

The central bank, along with a ₹1.5 lakh crore liquidity boost in late January, has also provided support via screen-based OMOs of ₹59,000 crore last month.

Deficits in system liquidity saw a peak of ₹3.15 lakh crore in late January, before improving to a deficit of ₹38,215.7 crore on February 4.”As the deficit widens, we expect more OMOs in primary/secondary markets, VRRs and foreign exchange swaps, especially as the RBI’s forward book is heavy with large near-term maturity,” Madhavi Arora, chief economist at Emkay Global Financial Services said in a report.The RBI governor also said in his monetary policy statement that additional measures to support liquidity will be provided as required. “It’s been the endeavour of the RBI to provide as much liquidity as required. We will be watchful and nimble and I want to reassure you that we will be very proactive in whatever liquidity requirements are needed,” Governor Malhotra said in his statement.

Yields on the 10-year benchmark government bond also hardened by about five basis points after no fresh measures were announced for liquidity. The 10-year yield closed at 6.71% on Monday. These yields were trading at 6.65% on Thursday, a day before the monetary policy announcement, in expectation of a change in stance, additional liquidity measures and a rate cut.