RBI to conduct 49-day variable rate repo for Rs 75k cr to boost liquidity

India's central bank on Wednesday surprised markets by announcing another liquidity infusion this week as it aims to inject funds in the banking system for the longer term.

The Reserve Bank of India will conduct a 49-day variable rate repo for Rs 75,000 crore ($8.63 billion) on Friday, it said after market hours.

The RBI had doubled the quantum of government bonds it aims to buy in an open market operation to Rs 40,000 crore.

On Wednesday, the central bank also announced an overnight repo auction worth Rs 2.75 trillion rupees, which is the highest quantum for such operations since it started conducting these a month ago.

Over the last one month, the central bank has infused more than Rs 1.50 trillion through a combination of bond purchases, dollar/rupee buy/sell swaps and a 56-day repo.

Market participants attribute the rise in liquidity injections to the drain on rupee liquidity caused by the RBI's massive intervention in the foreign exchange market earlier this week.

DBS Bank estimates the RBI sold $10 billion on Monday and Tuesday as the rupee slipped to a record low, while Goldman Sachs estimates the FX market sales at $11 billion.

The central bank had not announced liquidity-enhancing measures on Friday, when it announced the first interest rate cut in nearly five years.

"While no fresh measures on liquidity were announced at last week's rate review, this week's action reinforces that the central bank will tweak its response mechanism in tune with evolving conditions, especially in a bid to sterilise intervention moves," said Radhika Rao, executive director and senior economist at DBS Bank.

Rao expects more such measures including longer-tenor FX swaps and open market operations towards the end of the fiscal year and early next financial year.

India's fiscal year runs April through March.