• Thu. Jan 30th, 2025

    RBI announces $5-bn forex swap, OMOs and VRR to inject liquidity

    RBI

    On Monday, the Reserve Bank of India (RBI) announced that it will conduct a $5 billion USD/INR buy/sell swap on January 31, a move expected to inject Rs 43,000 crore of liquidity into the banking system.

    The regulator also announced open market operation (OMO) purchase auctions aggregating to RS 60,000 crore and a 56-day variable rate repo (VRR) auction in February. All the three measures are aimed at easing tightness in liquidity condition which is running into a deficit of over Rs 3 lakh crore.

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    RBI to Inject Rs 43,000 Crore via $5 Billion Swap

    The RBI announced it will hold a USD/INR buy/sell swap auction of $5 billion with a six-month tenor on January 31, 2025. VRC Reddy, Head Treasury at Karur Vysya Bank, stated that if fully subscribed, the buy/sell swaps will add Rs 43,000 crore of liquidity to the system. The funds will enter the system on February 4.

    In the buy/sell swap, the RBI will buy $5 billion from banks and provide them with an equivalent amount of rupee liquidity. After six months, the RBI will sell $5 billion to the banks, removing a similar amount of rupee liquidity from the system.

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    The RBI announced that it will conduct OMO purchase auctions of government securities for a total amount of Rs 60,000 crore in three tranches of Rs 20,000 crore each, scheduled for January 30, 2025, February 13, 2025, and February 20, 2025.

    The OMO will improve the liquidity environment and reduce yields. Reddy noted that the VRR auction may see limited interest from banks, given the results of previous auctions. The banking system’s liquidity deficit widened to Rs 3.13 lakh crore on January 27 due to the RBI’s ongoing dollar sales aimed at curbing rupee depreciation.

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