OMOs, forex swaps to keep system flush with liquidity

Core Insights - The Reserve Bank of India (RBI) announced open market operation (OMO) purchases and dollar-rupee buy-sell swaps to enhance banking system liquidity, targeting a desired liquidity level of 1% of net demand and time liabilities (NDTL) [4] - The RBI plans to inject ₹1.45 lakh crore into the banking system through OMO purchases of ₹1 lakh crore in two tranches of ₹50,000 crore each on December 11 and 18 [4] - Average system liquidity was reported at ₹1.68 lakh crore in November and ₹2.63 lakh crore in December so far, indicating a significant liquidity strain due to foreign-exchange interventions and seasonal currency leakage [4] Group 1 - The RBI's liquidity infusion is strategically timed to coincide with quarterly advance tax outflows expected in the third week of December [4] - The first tranche of OMO will involve the buyback of seven government securities maturing from 2029 to 2050 [3] - RBI Governor Sanjay Malhotra emphasized that the primary purpose of OMOs is to provide sufficient liquidity rather than to influence government securities yields [4] Group 2 - Economists noted that the recent liquidity measures are essential for ensuring adequate and durable liquidity in the banking system, facilitating monetary transmission [4] - The RBI's actions are perceived as a frontloading of potential rate cuts, indicating awareness of government securities yields [4] - The forex swap for $5 billion will have a tenure of three years, with the first leg of the transaction scheduled for December 16 [4]