RBI to open up OMO this week

BE/RBI NOTE/37/2018

It is likely that RBI might conduct Open Market Operations this week to bring in liquidity in the banking system.

  1. To curb volatility in the money supply, RBI has intervened in the foreign exchange market which has otherwise resulted in the liquidity crunch and further reducing the rupee value against Dollar to Rs. 73 per dollar.
  2. The shortfall in the liquidity position is estimated to be at Rs. 50,000 to Rs. 60,000 crore due to RBI intervention in the Forex market.
  3. The liquidity position is expected to get further tightened this week due to advance tax payable by Corporates and businesses.
  4. This has brought RBI into picture to conduct Open Market operations. What would happen in an OMO process and what is expected result?
    1. Here RBI buys certain Government securities from the market which brings in liquidity in the system.
    2. The size of the buyback if undertaken this week is expected to be around Rs. 10,000 crore.
    3. An intervention would result in sucking the rupee liquidity and to this extent RNBI will pump in liquidity into the system.
  5. An intervention in the Foreign exchange market by RBI since 2013 has resulted in a reduction in the Forex Reserves to the tune of over Rs. 26 billion.
  6. RBI has projected the retail inflation to stand at 4.6 per cent in the second quarter of Financial Year 2019 and around 5% in the first quarter of Financial Year 2019.
  7. Bankers hope that RBI would raise the Repo rates by 25 basis points in the coming monetary policy review meet.

 

Author: Admin Bankedge

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