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RBI Pumps Rs 2.90 Lakh Crore to Ease Cash Crunch
24 Dec
Summary
- Central bank injects Rs 2.90 lakh crore via bond purchases and currency swap.
- Tight cash conditions pushed short-term rates above the policy target.
- Measures aim to stabilize yields and improve market sentiment.
The Reserve Bank of India announced a substantial liquidity infusion of Rs 2.90 lakh crore into the banking system. This measure is designed to alleviate tight cash conditions that have caused short-term interest rates to surpass the central bank's policy target, specifically the repo rate of 5.25%. The injection will occur through open market operations involving the purchase of government bonds and a significant dollar-rupee swap.
The bond purchases will take place in four tranches of Rs 50,000 crore each, scheduled for December 29, January 5, January 12, and January 22. Additionally, a $10 billion buy/sell swap auction is planned for January 13 to ease dollar liquidity. These actions follow previous liquidity infusions that failed to sustain stability, as tax outflows contributed to renewed tightening.
This intervention is anticipated to stabilize yields and improve market sentiment, providing much-needed confidence in the availability of durable liquidity. Experts suggest the RBI's proactive approach will help address demand-supply imbalances in the bond market and support investor confidence, especially with an expected increase in state government bond sales in the upcoming quarter.
