Tag: Open Market Operations

RBI may infuse another Rs 1.6 lakh crore via OMOs in Mar quarter, says BofAML

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) may have to conduct open market operations (OMOs) of another Rs 1,60,000 crore in the fourth quarter of the current fiscal to tide over the banking liquidity crisis, Bank of America Merrill Lynch (BofAML) said in a report on Wednesday.

The global investment firm also said the apex bank’s decision on Tuesday to infuse Rs 40,000 crore through OMOs in December may not be adequate to defuse the current liquidity shortfall, which is as high as Rs 1,00,000 crore.

“Our liquidity model estimates suggest that the RBI will need to OMO another Rs 1,60,000 crore or $22 billion in the March quarter. This supports our call that the government securities market will slip to excess demand by March,” the report said.

The money market deficit is already running at a high Rs 1,00,000 crore, and after advance tax outflows, it could climb to Rs 1,40,000 crore in December, it added.

BofAML said it does not rule out the possibility of the RBI cutting the cash reserve ratio (CRR) by 1 per cent if foreign portfolio investors (FPI) flows remain weak.

“This will release about Rs 1,20,000 crore into the system and bring the money market to neutral for now. This would then reduce down RBI OMO to Rs 40,000 crore for the March quarter,” the report said.

CRR, which is the minimum amount of deposit that the commercial banks have to keep as reserves with the RBI, currently stands at 4 per cent.

The investment bank said dilution of prompt corrective action (PCA) norms, if finally done, will restore credit flow to even credit-worthy small and medium size enterprises (SMEs) only if there is sufficient liquidity via RBI OMO or CRR cut.

Out of 21 state-owned banks, 11 lenders are under the RBI’s PCA framework, which restricts their lending and expansion activities.

The report said an RBI special window against bank lending to mutual funds, non-banking finance companies and housing finance companies may not be of any help.

“After all, mutual funds are not facing panicky redemptions but reportedly cutting back investment in NBFC paper,” it added.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI to pump in additional liquidity of Rs 40,000 crore in December

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The RBI will pump in another set of liquidity in December by infusing Rs 40,000 crore into the system through open market operations (OMOs). “Based on an assessment of the durable liquidity needs going forward, the RBI has decided to conduct purchase of government securities under Open Market Operations (OMOs) for an aggregate amount of Rs 400 billion in the month of December 2018,” the central bank said in a release on Tuesday.

The Reserve Bank will detail about the auction dates for the OMOs in due course.

However, it added that this OMO amount is indicative with the RBI retaining the flexibility to change it, depending on the evolving liquidity and market conditions.

The RBI had announced to inject Rs 40,000 crore into the system in November. It has already infused Rs 30,000 crore into the system while the rest Rs 10,000 crore liquidity would be pumped in through auction on Thursday.

“Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, the Reserve Bank has decided to conduct purchase of the following Government securities under OMOs for an aggregate amount of Rs 100 billion on November 29, 2018 through multi-security auction using the multiple price method,” RBI said in a separate release.

In October, the central bank already injected Rs 36,000 crore into the system through OMOs.

The RBI had earlier stated that the system liquidity will move into deficit in the second half of 2018-19 and the evolving liquidity conditions would determine its choice of instruments for both transient and durable liquidity management.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI to inject Rs 12,000 crore into system on October 11 to manage liquidity

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The Reserve Bank of India (RBI) on Tuesday announced it will inject Rs 12,000 crore liquidity into the system through purchase of government bonds on October 11 to meet the festival season demand for funds.

The government will purchase bonds with maturity ranging between 2020 to 2030, the RBI said in a statement.

The auction to purchase government bonds is a part of the Open Market Operations (OMO) to manage liquidity in the system which seems to be facing liquidity tightness.

“Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, the Reserve Bank has decided to conduct purchase of the following government securities under Open Market Operations for an aggregate amount of Rs 120 billion on October 11, 2018 through multi-security auction using the multiple price method,” it said.

The result of the auction will be announced on the same day and payment to successful participants will be made during banking hours on October 12, it said.

As part of the OMOs, the RBI will purchase government securities maturing in 2020 bearing interest rate of 8.27 percent, 2022 (8.15 percent), 2024 (7.35 per cent), 2026 (8.15 percent) and 2030 (7.61 percent).

The RBI said it has the right to decide on the quantum of purchase of individual securities and can also accept offers for less than Rs 12,000 crore.

It may as well purchase marginally higher than the aggregate amount due to rounding-off effect, it said, adding it can also accept of reject any or all the offers either wholly or partially without assigning any reason.

OMOs are the tools which can be used to either inject or drain liquidity from the system.

It is employed to adjust rupee liquidity conditions in the market on a durable basis.

If there is excess liquidity, the RBI resorts to sale of securities and sucks out the rupee liquidity. Similarly, when the liquidity conditions are tight, it buys securities from the market, thereby releasing money into the market.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow