RBI Purchases Rs 50,000 Crore in Government Bonds to Boost Banking Liquidity

Mumbai - The Reserve Bank of India (RBI) on Wednesday purchased government securities worth Rs 50,000 crore to enhance liquidity in the banking system and support economic growth.

This transaction marks the first tranche of the liquidity infusion announced in last week’s monetary policy, under which the central bank committed to injecting Rs 1 lakh crore through government bond purchases, along with an additional $5 billion via a foreign exchange swap facility.

The RBI has recently been selling US dollars to prevent excessive depreciation of the rupee. These dollar sales have absorbed significant liquidity from the banking system, contributing to tighter monetary conditions and upward pressure on interest rates.

RBI Governor Sanjay Malhotra stated on Friday that the central bank will maintain adequate liquidity in the system without targeting a specific surplus level, such as 1 per cent of net demand and time liabilities (NDTL). He emphasised that the key objective is ensuring that banks have sufficient reserves to operate efficiently.

Malhotra noted that system liquidity currently fluctuates between 0.6 per cent and 1 per cent of NDTL and may exceed these levels at times. He remarked that the precise figure is less important than ensuring a smooth flow of credit and monetary transmission.

To achieve its objectives, the RBI has initiated a set of liquidity-enhancing measures, including open market operations (OMOs) and USD/INR buy-sell swaps. Under OMOs, government securities worth Rs 1 trillion will be purchased in two rounds of Rs 50,000 crore each on December 11 and December 18. Additionally, a three-year USD/INR buy-sell swap worth $5 billion is scheduled for December 16.

Liquidity levels in the banking system are influenced by currency circulation, foreign exchange transactions, and changes in reserve requirements due to shifts in deposits. Dollar sales, for example, reduce bank deposits and tighten liquidity, while currency issuance or increased reserve obligations also affect the overall balance.

With inputs from IANS