The RBI said in order to address additional demand for liquidity, 'it is prepared to inject adequate additional liquidity using a combination of appropriate instruments'
Mumbai:The Reserve Bank of India (RBI) on Monday said it will inject additional liquidity of Rs1 trillion in banks through longer tenor instruments to enable flexibility towards meeting their fund needs.
The RBI said in order to address additional demand for liquidity and with a view to provide flexibility to the banking system in its liquidity management towards March-end, “It is prepared to inject adequate additional liquidity using a combination of appropriate instruments." This will be in addition to normal Liquidity Adjustment Facility (LAF) operations.
“After reviewing the current and evolving liquidity conditions in the banking system, it has been decided to conduct additional variable rate repo operations for longer tenors to provide additional liquidity support to the banks during March 2018," it said.
The RBI will conduct four variable rate term repo auctions of Rs25,000 crore each in March 2018. Commenting on the RBI’s decision, Karthik Srinivasan of ICRA said the proposed injection of additional liquidity using longer term repo that extends beyond 31 March, 2018 “should help cap the short-term rates and also aid in lowering the rate volatilities" for the rest of the month.