RBI moves to tackle liquidity crunch with ₹60,000 crore OMOs, VRRs, and forex swaps

The Reserve Bank of India (RBI) on Monday announced a series of measures, including open market operations (OMO) worth ₹60,000 crore, to inject liquidity into the banking system.

The central bank will conduct OMO purchase auctions of government securities in three tranches of ₹20,000 crore each, scheduled for January 30, February 13, and February 20, 2025.

The RBI also announced a 56-day Variable Rate Repo (VRR) auction for ₹50,000 crore on February 7, 2025, to further boost short-term liquidity.

To address foreign exchange market requirements, it will conduct a USD/INR buy/sell swap auction worth USD 5 billion for a six-month tenor on January 31, 2025.

"The Reserve Bank will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions," the banking regulator said in a release.

The banking system has been grappling with a severe liquidity crunch, reflected in a deficit of ₹2.09 lakh crore as of January 14, according to RBI data. The tight conditions have been exacerbated by aggressive foreign portfolio investor (FPI) dollar sales from Indian equity markets.

The measures come just days ahead of the Reserve Bank’s Monetary Policy Committee (MPC) meeting on February 5, where policymakers are expected to deliberate on the economic impact of the liquidity crunch.

Earlier this month, a report by Nomura’s Asia Insights had flagged the need for a combination of VRRs, buy/sell swaps, and OMO purchases to address the tightening liquidity.