RBI starts buying bonds through OMOs to stem shortage in liquidity

According to State Bank of India group economist Soumyakanti Ghosh, the RBI can potentially pump in at least an additional $25 billion from its reserves to support the rupee

The Reserve Bank of India (RBI) has started buying bonds through open market operations (OMOs), sensing that liquidity in the banking system dried up substantially this week owing to advance tax outflow and should be in deficit mode in the coming days.

On Wednesday, it bought bonds worth Rs 100 billion. Any such move adds durable liquidity in the system, as distinct from short-term funds banks borrow from the central bank.

The system liquidity deficit touched Rs 1.32 trillion on Tuesday, a day before the OMO happened. The liquidity shortage is pushing up yields on short-term money market instruments, such as 91-day