Mumbai: The Reserve Bank of India (RBI) announced Monday the infusion of ₹1.25 trillion ($14.71 billion) into the financial system in May through bond purchases, making yet another significant foray into maintaining adequate liquidity in the banking sector.
This is part of the ongoing open market operations conducted by the RBI with a view to ensuring effective monetary policy transmission, thereby aiding economic growth.
The central bank will infuse liquidity in four tranches, with the very first and largest one being the ₹500 billion tranche due on May 06. This will be followed by three more tranches of ₹250 billion each on May 9, May 15, and May 19.
These purchases follow an infusion of ₹1.2 trillion in April through similar means like forex swaps and debt purchases. This recent step also follows the previous cut of the benchmark repo rate by the RBI earlier in April, as well as the adoption of the accommodative stance to further boost credit growth and ease financial conditions.
According to RBI Governor Sanjay Malhotra, the system is targeting a surplus of 1% of total deposits, which translates into a surplus of about ₹2.2–2.5 trillion. Meanwhile, the recent previous levels of surplus liquidity are lower, with the daily averages recorded at ₹809 billion for the week ending April 25 after dipping considerably from last week's level of ₹1.78 trillion.
The sustained support from the RBI should lend stability to interbank rates, encourage credit movement, and invigorate market confidence in the banking system. This liquidity boon comes at a very cusp when markets are awaiting further cues from the central bank minutes due shortly and from the global economic front.
[Source Credit: Business Recorder]
