The current assessment suggests that the strain on market liquidity is likely to remain enduring in view of the fiscal targets set for the year as well as projections for aggregate credit growth, warranting the need to provide liquidity of a more permanent nature, the RBI said in a release.
The RBI had bought R2,532 crore worth of bonds under OMO last in July 2013. Bond purchases under OMOs are considered a more permanent infusion of liquidity. In the past, the central bank has been buying bonds with the dual purpose of managing the governments market borrowing as well as infusing liquidity into banks during times of stress.
However, in 2013-14, the RBI had slowed its OMO bond purchases and had in fact tightened liquidity. In the release on Friday, the RBI said that liquidity has come under stress off late due to build up of government cash balances. To address this transient tightness, the RBI has been conducting term repos, wherein it provides liquidity for 11-day, 14-day and 28-day. On Friday, banks had borrowed R48,680 crore from 28-day term repo.