The Reserve Bank of India is likely to conduct two Open Market Operations (OMOs) of Rs 10,000 crore each to help banks overcome the liquidity crunch.

Banks are facing liquidity tightness due to payment of the fourth instalment of advance tax by India Inc.

The liquidity crunch is underscored by the fact that on Friday, 48 banks collectively borrowed Rs 1.35 lakh crore from the RBI.

Market players are expecting the central bank to purchase government securities through OMOs to inject liquidity into the banking system.

“The RBI could conduct two OMOs of Rs 10,000 crore each before March-end. It could also cut Cash Reserve Ratio (CRR) by 25 bps to meet the ongoing liquidity crunch,” said a dealer with a public sector bank.

CRR, which is the slice of deposits parked with the RBI, is currently at 4 per cent of banks’ deposits. A basis point is equal to one hundredth of a percentage point.

Parthasarathi Mukherjee, President Treasury, Axis Bank, said, “Strategically, OMOs could be a better bet for the RBI to meet the immediate liquidity crunch. The RBI could go for a repo rate cut as the inflation remains around manageable levels.”

(This article was published on March 15, 2013)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.