The Reserve Bank of India (RBI) on Tuesday received bids exceeding twice the notified amount in its open market operation (OMO) purchase from banks. The apex bank got bids worth more than Rs 1.01 lakh crore, against the notified amount of Rs 50,000 crore. The purchase of government securities will infuse much-needed liquidity ahead of advance tax and GST payments, which are expected to drain funds from the banking system.
“In the coming weeks, advance tax and GST outflows will further tighten the liquidity deficit,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. “However, we expect overnight rates to remain in check as liquidity conditions will be supported by RBI’s measures.”
Liquidity deficit in the banking system had eased to some extent in the first week of March, helped by the RBI’s forex swap auction. The $10-billion auction that was conducted on February 28 injected nearly Rs 85,000 crore in the banking system.
However, the cash squeeze increased with the liquidity deficit breaching Rs 2 lakh crore the second half of the month, touching Rs 2.42 lakh crore on March 17, according to the RBI data.
Since mid-January, the RBI has been injecting funds to counter a sharp decline in liquidity, primarily driven by its aggressive interventions in the foreign exchange market. The deficit had breached the Rs 3 lakh-crore mark and touched Rs 3.15 lakh crore on January 11.
It hovered in the range of Rs 1.5 lakh crore to Rs 2 lakh crore in February following the RBI’s measures.
“The RBI has been forthcoming in announcing measures, which to us suggest that the RBI could want the system to move into a surplus, rather than remaining in deficit,” said Nomura in a report. “In terms of the liquidity outlook, the measures will help bring down the deficit and can move the system into a small surplus,” it added.
The RBI introduced various measures, including lowering the cash reserve ratio (CRR), daily variable rate repo (VRR) auction, long-term repo auction, forex swaps and OMO purchases, to ease liquidity stress.
In December, the RBI cut the CRR by 50 basis points, releasing Rs 1.16 lakh crore into the market. This was followed by daily VRR auctions, Rs 1 lakh crore in OMO purchases, a dollar-rupee buy/sell swap, and a 56-day VRR auction.