RBI announces a liquidity infusion of more than USD 21 billion to boost growth

Concerning OMO (Open Market Operations)

By buying or selling G-Secs on the open market, the RBI can influence the money supply and interest rates in an economy.

When G-Secs are purchased on the open market, the high powered money (H) increases; however, when they are sold on the open market, it decreases by the same amount. High-powered money is the sum of the public's currency (coins and notes) and commercial bank reserves.

Concerning auctions of US dollars and Indian rupees

Under it, a bank agrees to buy the same quantity of US dollars at the conclusion of the swap period and sells US dollars to the RBI. Each bank quotes their swap rates (forward premium or discount) during an auction, and the program begins by accepting the lowest bidder.

The necessity of a liquid infusion

Banking system has experienced liquidity challenges since November 2024, due to factors such as tax outflows, significant foreign portfolio investor selling in Indian equities, RBI intervention in forex markets, etc.

Generally speaking, favorable liquidity conditions promote economic growth, guarantee policy transmission, and improve loan rate pass-through.

Additional Liquidity Infusion Devices

Quantitative instruments include the Bank Rate, the Statutory Liquidity Ratio (SLR), the Cash Reserve Ratio (CRR), and the Liquidity Adjustment Facility (Repo and Reverse Repo).

Qualitative instruments include Margin Requirement, Selective Credit Control (SCC), Moral Persuasion, and Credit Rationing.