RBI Announces ₹1 Lakh Crore OMO and $10 Bn Swap for Liquidity

The Reserve Bank of India (RBI) has announced the purchase of Government Securities of ₹1 lakh crore through two Open Market Operation (OMO) tranches on January 29 and February 5. There will also be a $10 billion USD-INR buy or sell swap auction scheduled for February 4, for a three-year tenor, to help provide liquidity to banks through an infusion of funds into the banking system. 

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

The value of each OMO tranche is ₹50,000 crore, and they will focus on purchasing Central Government Securities only.

With these measures, the RBI is addressing system-wide liquidity needs through measured intervention in the financial system via OMO operations.

OMO Purchase Mechanics

RBI will conduct an auction for a combined value of ₹1 lakh crore, which will occur over the dates indicated above. The first tranche of the OMO operation will begin on January 29 and the second tranche will commence on February 5.

The dates for these operations have been expedited to provide an earlier impact on the financial markets. Purchases of Government Securities are aimed at alleviating pressure on the banking system as a result of evolving market conditions.

The Reserve Bank of India regularly uses OMO purchases as a mechanism to maintain stable money market conditions.

USD/INR Swap Details

A Swap Auction is a way for banks to sell U.S. dollars to the Reserve Bank of India with a built-in promise to return the same amount of U.S. dollars after three years. This structure simply acts as a place for the RBI to do an exchange of purchases and sales.

A $10 Billion Swap Auction adds to both the Stability of the Indian Rupee and the availability of the dollar. In addition, the Swap Auction allows for a forward supply of U.S. dollars without causing immediate disruption to Your Company's Foreign Exchange market.

The Swap Auction allows for a smooth execution of all necessary functions on February 4.

Liquidity Injection Context

The combination of the OMO and Swap Auctions allows for a significantly increased amount of availability of funds to the banking system. OMOs provide the opportunity for the RBI to purchase Securities, while the Swap Auction increases the amount of Foreign Exchange available to the Banking Sector.

The RBI will determine the volume and timing of each Swap Auction in accordance with what is deemed necessary for the current environment. Therefore, in doing so, the RBI assesses current conditions in the Money Market, whether there are surplus or deficit situations.