RBI Steps In To Meet Any Additional Local Liquidity Needs
The RBI said that that it will offer Rs 25,000 crore via variable rate repo operations under its liquidity adjustment facility.
The Reserve Bank of India on Friday stepped in to meet any additional short-term liquidity needs as the central bank continued to respond to a fast-changing environment.
In a release on Friday afternoon, RBI said that that it will offer Rs 25,000 crore via variable rate repo operations under its liquidity adjustment facility.
The decision to offer this short-term liquidity followed the central bank’s decision to conduct sell/buy forex swaps to ensure that the market is adequately supplied with dollars. An unintended consequence of this is that rupee liquidity gets sucked out.
“In order to counterbalance the domestic liquidity effects that the sell-buy swap may entail, it has been decided to provide rupee liquidity to the system today by conducting a variable rate repo auction,” the central bank said in its release.
Targeted Steps
The Indian central bank has started taking targeted emergency measures as the global and local spread of the novel Coronavirus picks up.
In its release on Thursday, the RBI had said that it will conduct $2 billion in sell/buy swaps via an auction on March 16. This was done to ensure that any dollar shortages don’t emerge in a market where foreign outflows have surged. The RBI’s said that it was offering this $2 billion “as a start”, suggesting that it would continue to provide this dollar liquidity as needed.
Also Read: RBI Takes Its First Emergency Step By Providing Dollar Liquidity
The follow-up announcement to offer short term rupee liquidity signals that the central bank also remains watchful of domestic liquidity conditions. While large surplus liquidity continued to persists, the Rs 25,000 crore variable rate repo operation will ensure that any short-term funding mismatches are also ironed out.