MUMBAI: The Reserve Bank of India (RBI) has assured traders and bond buyers that it would conduct more open market operations, a device that infuses or extracts liquidity and prevents distortion in broader yields.
“RBI will continue to manage the system liquidity so as to achieve the monetary policy objective of aligning the overnight weighted average call rate with the policy rate…,” said Viral Acharya, deputy governor at RBI.
Systemic liquidity remained generally in surplus mode during June-July 2018. In June, the RBI absorbed surplus liquidity of around Rs 14,000 crore on a daily net average basis.
The central bank injected liquidity under the liquidity adjustment facility (LAF) of Rs 10,700 crore in July.
Based on an assessment of prevailing liquidity conditions and of durable future liquidity needs, the RBI conducted two open market operations (OMO) of Rs 10,000 crore each on June 21 and July 19.
Although the growth in currency in circulation has moderated to an extent, its recent expansion remains above the historical average.
“RBI has indicated its preference to maintain liquidity on a neutral level,” said Vijay Sharma, executive vice president for fixed-income at PNB Gilts. Market consensus is that from September, the RBI may conduct OMO purchases worth 1 lakh crore as liquidity shrinks.
“The festival season and elections in major states will contribute to an increase in cash in circulation at that time too,” he said.
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