In order to strengthen the banking system, the Reserve Bank of India (RBI) recently announced a number of liquidity initiatives, including bond purchases through open market operations (OMO) and foreign exchange swaps. According to market players, the central bank frontloaded the measures in December, probably taking into account significant withdrawals throughout the month.
The majority of economists think this is sufficient for the current month. Although the market applauded these actions, they anticipate a further infusion of liquidity of Rs 1.5 lakh crore in the fourth quarter, a quarter in which there was a significant currency leak, in order to guarantee the smooth implementation of the rate decrease and mitigate the effects of any potential foreign exchange intervention.
In November, the average system liquidity was Rs 1.78 lakh crore, as opposed to Rs 3.04 lakh crore in July. The system’s liquidity was Rs 2.15 lakh crore as on December 7.
The RBI announced liquidity measures of Rs 1.5 lakh crore, including a three-year USD/INR buy-sell swap of $5 billion and bond purchases of Rs 1 lakh crore through open market operations (OMO), in addition to a 25 basis point rate drop. The FX swap will take place on December 16, while the two OMO tranches will take place on December 11 and December 18. The advance tax and GST outflows, which are anticipated to be between Rs 2.5 lakh crore and Rs 3 lakh crore, are in line with the timing of these procedures.
