RBI says will conduct frequent term repos for flexible cash management

But retains overall borrowing limit for lenders

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The Reserve Bank of India (RBI) said it would conduct more frequent term repos but retained the overall borrowing limit for lenders, in a bid to make borrowing more flexible without injecting additional liquidity into markets.

 

Bond markets barely moved on the measures, with the 10-year benchmark 2024 bond and the overnight cash rates broadly steady from levels before the announcement.

 

By issuing more frequent term repos, the RBI addresses a key complaint by banks, which had said irregular auctions of these cash-for-loan transactions had made it difficult to manage near-term cash needs.

 

Term repos are loans the RBI extends to banks, for which government bonds act as collateral for a specified period of time.

 

RBI Governor Raghuram Rajan said earlier this month the central bank would conduct shorter-duration repos, and issue them more frequently, but has ruled out increasing the amount of cash injected.

 

The central bank strives to ensure a certain level of cash shortage as part of its strategy to curb inflation.

 

"When you look at the announcements, there has been nothing new announced except for some flexibility on term repos," said Jayesh Mehta, country treasurer and managing director at Bank of America Merrill Lynch in India.

 

The RBI said it would conduct 14-day term repo auctions four times during a two-weekly reporting cycle, or every Tuesday and Friday, from September 5.

 

The central bank will also conduct 3 to 4-day term repo auctions but only from September 5 to 12.

 

To further manage liquidity conditions starting next month, the RBI said it could also auction overnight variable rate repos, while saying it could also choose to sell part of the government's cash balances.