RBI to conduct open market operations worth Rs 8,000 cr

To boost liquidity in the system, the Reserve Bank of India (RBI) announced Open Market Operations (OMOs) purchase of gilts worth Rs 8,000 crore to be held on Friday.

The RBI has conducted three Open Market Operations (OMOs) purchase of gilts this month to comfort the liquidity. The central bank has infused Rs 31,158.22 crore by way of OMOs in December.

However, despite the OMOs, liquidity continues to be tight. Daily average borrowing by banks under RBI's Liquidity Adjustment Facility remained above Rs 1,00,000 crore in the last one month. This level is far above the RBI's comfort zone of +/- 1 per cent of banks’ Net Demand and Time Liabilities (NDTL).

FLOW CRUNCH

• RBI conducted three Open Market Operations for purchase of gilts in December to comfort the liquidity, and infused Rs 31,158.22 crore by this way into the system
• In spite of the OMOs, liquidity continues to remain tight. Daily average borrowing by banks under RBI's Liquidity Adjustment Facility remained above Rs 1,00,000 crore in the last one month
• This level is far above RBI's comfort zone of +/- 1 per cent of banks’ Net Demand and Time Liabilities
• Borrowing by banks under LAF touched a record high this fiscal at Rs 1,70,140 crore on Thursday

On Monday, banks borrowed Rs 1,50,390 crore under LAF. However, in the past, the OMOs did not help much in bringing down borrowing under LAF. Borrowing by banks under LAF touched a record high this fiscal at Rs 1,70,140 crore on Thursday. This is because every Friday, the RBI is auctioning gilts to meet the government borrowing. Even this Friday, the RBI will auction gilts worth Rs 12,000 crore.

The other reason for tight liquidity is advance tax outflows from the system. Advance tax outflows had drained about Rs 50,000-60,000 crore liquidity from the system earlier this month. According to the street there is a need for government spending to ease the liquidity condition.