Central bank: looking to resume normal liquidity operations?

Reserve Bank of India i.e. RBI in Mumbai on Friday said it would resume normal operations due to volatile financial and financial conditions, aiming to overspend and bring overnight borrowing rates to variable repo rates.

In reviewing the changing financial and financial conditions, it has been decided to restore the normal functioning of asset management in phases as per the statement by the central bank.

As a first step, the central bank will hold a 14-day recurring auction of the ₹ 2 trillion exchange rate on January 15. Banks will invest more in the RBI while earning a reverse repo rate of 3.35% and this will reduce the lending rate to less than 3.35% in the money market.

This announcement serves not only one but two purposes in a clever way, pointing to a careful and balanced departure from the target and to the short-term leveling of the upper part of the tunnel as per the statement by Soumyajit Niyogi who is the director of India Ratings and Research.

The RBI has allowed its financial debt to remain in arrears since the announcement of a global closure in March.

The remaining daily income has been able 6 trillion- ₹ 7 trillion over the past few months. This has led to a short-term decline in prices to below the low repo rate of 3.35%. At a recent auction, the 90-day T-bill was sold at 3.038%, which is significantly lower than the reverse repo rate, or the rate at which banks borrow from the RBI. Short-term borrowing costs for both companies and banks dropped to less than 3.35%.

According to Care Ratings, the banking system has the most money in the last 19 months. This can be due to the inflow of cash into the bank over the outflow of bank loans.

Growing bank deposits have grown by 6.7% since March 2020 compared to 1.7% bank growth.

In addition, the various investment mechanisms undertaken by the RBI, including open market acquisition (OMO), long-term repo jobs, and targeted long-term repo jobs have been adding value to the economy.

To date, the RBI has made OMO purchase of the govt securities that is worth ₹3.57 trillion and also the OMO purchase of the state development loans which is worth ₹300 billion as per the reports.


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