The Reserve Bank of India on Monday said it will conduct additional variable rate repo operations for longer tenors up to 31 days every Tuesday for Rs 25,000 crore each to provide additional liquidity support of Rs 1 lakh crore to banks in March.
“After reviewing the current and evolving liquidity conditions in the banking system it has been decided to conduct additional variable rate repo operations for longer tenors to provide additional liquidity support to the banks during March 2018. Accordingly, Reserve Bank of India will conduct 4 variable rate term repo auctions in March 2018. These auctions will be conducted in addition to the regular 14 day variable rate Term Repo auctions and will be held every Tuesday,” the RBI said.
Karthik Srinivasan, group head- Financial Sector ratings, ICRA, said, “the proposed injection of additional liquidity aggregating to Rs 1 trillion by the RBI using longer term Repo that extends beyond March 31, 2018 should help cap the short-term rates and also aid in lowering the rate volatilities for the rest of the month.”
On February 15, the RBI had stated that in order to address additional demand for liquidity and with a view to provide flexibility to the banking system in its liquidity management towards March-end, it is prepared to inject adequate additional liquidity using a combination of appropriate instruments, while continuing with its normal Liquidity Adjustment Facility (LAF) operations. The RBI move has come at a time when liquidity in the banking system has tightened and credit growth has outpaced deposit growth.