Banks seek short-term funding from RBI amid tight liquidity
MUMBAI: The Reserve Bank of India infused Rs 2 lakh crore into the banking system on Friday through two separate repo auctions to help meet banks' funding requirements and ease short-term liquidity squeeze.
The central bank conducted two variable rate repo auctions. In the first auction, the RBI received bids worth Rs 2.03 lakh crore against the notified amount of Rs 1.75 lakh crore and accepted Rs 1.75 lakh crore at 5.26%.
Money market dealers said this will turn system liquidity into surplus from next week and help it remain comfortable through January. "This will be supported by continued OMO (open market operations) purchases totalling around Rs 1.50 lakh crore in January, along with G-sec redemptions of approximately Rs 90,785 crore," said VRC Reddy, head of treasury at Karur Vysya Bank.
Last week, the RBI announced liquidity infusion measures that were higher than market expectations. The central bank will purchase Rs 2 lakh crore worth of bonds under open market operations in four tranches and conduct $10 billion forex swaps maturing in three years.
System liquidity has remained in deficit since mid-December. RBI data shows that on December 25, the deficit stood at Rs 84,523.77 crore. However, this shortfall is largely transient, driven by advance tax outflows and GST-related payments.
"Liquidity conditions are expected to ease toward the month end as government spending gains momentum, supplemented by the RBI's pre-announced OMO purchases of Rs 50,000 crore on Monday," Reddy said.
On Friday, yields on government bonds fell due to poor demand. The benchmark 10-year yield ended at 6.56%, compared with 6.54% on Wednesday.
The 10-year benchmark yield has increased 20 basis points since December 5 despite a quarter percentage point policy rate cut in the latest policy review.
The sharp rise in yields forced Power Finance Corp (PFC) to scrap a '6,000-crore bond sale last week after bids came in at higher-than-expected coupons.
It had climbed to 6.7%, a multi-month high, last week, on expectations of increased state government borrowing.
On Friday, yields rose again as the cutoff announced on dated government securities amounting to Rs 32,000 crore was higher than expected, a money market expert said. The RBI had set a cutoff of 6.58% against market expectations of 6.56%.
Meanwhile, National Bank for Agriculture and Rural Development (Nabard) plans to raise Rs 7,000 crore through private placement of bonds maturing in three years and two months.
The central bank conducted two variable rate repo auctions. In the first auction, the RBI received bids worth Rs 2.03 lakh crore against the notified amount of Rs 1.75 lakh crore and accepted Rs 1.75 lakh crore at 5.26%.
Money market dealers said this will turn system liquidity into surplus from next week and help it remain comfortable through January. "This will be supported by continued OMO (open market operations) purchases totalling around Rs 1.50 lakh crore in January, along with G-sec redemptions of approximately Rs 90,785 crore," said VRC Reddy, head of treasury at Karur Vysya Bank.
Last week, the RBI announced liquidity infusion measures that were higher than market expectations. The central bank will purchase Rs 2 lakh crore worth of bonds under open market operations in four tranches and conduct $10 billion forex swaps maturing in three years.
System liquidity has remained in deficit since mid-December. RBI data shows that on December 25, the deficit stood at Rs 84,523.77 crore. However, this shortfall is largely transient, driven by advance tax outflows and GST-related payments.
"Liquidity conditions are expected to ease toward the month end as government spending gains momentum, supplemented by the RBI's pre-announced OMO purchases of Rs 50,000 crore on Monday," Reddy said.
On Friday, yields on government bonds fell due to poor demand. The benchmark 10-year yield ended at 6.56%, compared with 6.54% on Wednesday.
The 10-year benchmark yield has increased 20 basis points since December 5 despite a quarter percentage point policy rate cut in the latest policy review.
The sharp rise in yields forced Power Finance Corp (PFC) to scrap a '6,000-crore bond sale last week after bids came in at higher-than-expected coupons.
It had climbed to 6.7%, a multi-month high, last week, on expectations of increased state government borrowing.
On Friday, yields rose again as the cutoff announced on dated government securities amounting to Rs 32,000 crore was higher than expected, a money market expert said. The RBI had set a cutoff of 6.58% against market expectations of 6.56%.
Meanwhile, National Bank for Agriculture and Rural Development (Nabard) plans to raise Rs 7,000 crore through private placement of bonds maturing in three years and two months.
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