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 this month for Rs 25,000 crore each to provide additional liquidity support to banks. What this means is that the central bank is ready to provide liquidity aggregating Rs 1 lakh crore to the banking system in the current month.

This move comes in the backdrop of a gradual tightening of liquidity in the banking system, which is facing a scenario whereby credit growth is outpacing deposit growth, and the approaching mid-March deadline for Indian Inc to make advance tax payments. A repo operation entails provision of liquidity by the Reserve Bank of India to banks to overcome temporary liquidity mismatches.

In mid-February, the RBI had said 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.

At a post-monetary policy review press conference on February 7, RBI Deputy Governor Viral Acharya said “At present, the system remains by and large still in surplus liquidity mode…The system liquidity is, however, steadily moving towards the neutrality objective. “For instance, in December and January the system liquidity was in deficit mode on a few days and RBI provided liquidity through its repo operations to manage the system’s frictional liquidity needs on these days.”

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