Rs 11.1 trillion: Amount RBI pumped into banking system to boost liquidity

It pared repo rate by 40 bps on May 22, on top of a 75 bps cut on March 27, brought liquidity enhancing steps that stabilised bond yields even in the face of a Rs 12 trn borrowing programme

Measures taken by the Reserve Bank of India during the Covid crisis were driven by the need to expand liquidity in the system sizeably, in order to ensure that financial markets and institutions function normally in the face of Covid-related dislocations, consistent with the monetary policy stance.

The liquidity measures were taken as per the revised liquidity management framework introduced on February 14, this year. The central bank reduced the policy repo rate by 40 bps on May 22, on top of a 75 bps reduction on March 27, and introduced a number of liquidity enhancing initiatives that stabilised the bond yields even on the face of a Rs 12 trillion borrowing programme.  

“In order to make it relatively unattractive for banks to passively park funds with the Reserve Bank and to encourage their deployment for on-lending to productive sectors of the economy, the policy interest rate corridor was widened to 90 bps through a reduction of 25 bps in the reverse repo rate on April 17, 2020,” said the RBI’s monetary policy report. 

 

The liquidity measures were further reinforced during the first half of fiscal 2020-21, including those targeted at specific sectors and entities to alleviate liquidity and funding stress. This was mainly done in the form of long term repo operations (LTRO), or through Targeted LTRO. The money given under LTROs have started coming back to the central bank, and to compensate that perhaps, the RBI has stepped up its bond purcahssing activities from the secondary markets. Till September in this fiscal, the RBI purchased about Rs 1.91 trillion of bonds from the markets. Overall, till September 30, the RBI’s net liquidity injection in the banking system stood at Rs 11.11 trillion.