RBI Doubles Security Purchases to Manage Liquidity

MUMBAI (Reuters) – India’s central bank announced on Monday that it will double the amount of security purchases in its next open market operation on February 13 to address the liquidity deficit in the banking system.

The Reserve Bank of India (RBI) will purchase government securities worth 400 billion rupees ($4.57 billion), up from the previously announced 200 billion rupees.

The banking system has faced a liquidity deficit for eight consecutive weeks as of the week ending February 7, with the current deficit at 1.33 trillion rupees.

On Friday, the RBI cut its key interest rate by 25 basis points to stimulate the sluggish economy, but did not introduce any liquidity-boosting measures, resulting in an increase in bond yields.

RBI Governor Sanjay Malhotra stated that the central bank will continue to monitor the changing liquidity and financial market conditions and take appropriate measures to ensure orderly liquidity.

The central bank has already infused over 1 trillion rupees through bond purchases and dollar/rupee swaps, as well as an additional 500 billion rupees via a 56-day repo auction. ($1 = 87.4530 Indian rupees)