RBI advances OMO date, announces repo of Rs 1 trn in two tranches

The first tranche of such OMO, of a similar amount, will be conducted on Tuesday.
The Reserve Bank of India (RBI) stepped in on Monday to infuse more liquidity into the system by announcing term repo operations of Rs 1 trillion in two tranches, even as it advanced a secondary bond-buying plan scheduled next week.

The repo would take care of any frictional liquidity requirements of the banking system, the central bank said. But, at the same time, the central bank’s special swap operation to infuse dollar liquidity into the system saw tepid response. With $2 billion on offer, banks bid for only $1.53 billion, of which the central bank accepted bids for only $650 million. 

According to currency dealers, this pointed to two possibilities. “One, that the market doesn’t need dollar liquidity. Second, the RBI was not ready to offer higher premium for the six-month dollar. The second reason looks more obvious,” said a senior currency dealer requesting anonymity.

The dollar index, which measures the greenback’s strength against major global currencies, is now at 102, while emerging markets currencies fall rapidly in value against the dollar. The rupee on Monday crossed 76 a dollar. 

Earlier in the day, the RBI said the variable rate 16-day repo operations, in which the central bank infuses liquidity in the system, will be held on Monday and Tuesday, “as a pre-emptive measure to tide over any frictional liquidity requirements on account of dislocations due to COVID-19,” the central bank said. The central bank also advanced its Rs 15,000 crore open market operations (OMO), in which it buys bonds from the secondary market, to March 26 from March 30. Another Rs 15,000 crore of OMO will be conducted on Tuesday. This will take the total OMOs in March to Rs 40,000 crore.

The central bank has announced a series of measures to tide over any liquidity issues caused by coronavirus dislocation in the markets. It has so far announced $4 billion in forex swaps, said it will buy Rs 40,000 crore of bonds through OMO in March, announced Rs 1 trillion of liquidity infusion through 1-year and 3-year long term repo operations, and now the Rs 1 trillion variable rate repo operations.

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