RBI to enhance liquidity next week by injecting $16 billion to cover for tax outflows

The RBI bought bonds worth Rs 40,000 crore on Thursday, after an initial announcement it would purchase only Rs 20,000 crore.

The Reserve Bank of India will step up its liquidity infusion and inject over $16 billion next week into the banking system, which will see large outflows owing to tax payments.

The RBI has doubled the quantum of government securities it aims to purchase to Rs 40,000 crore ($4.61 billion) on a review of current and evolving liquidity conditions.

The RBI bought bonds worth Rs 40,000 crore on Thursday, after an initial announcement it would purchase only Rs 20,000 crore.

"The increase in the quantum was largely expected after a similar action this week," said VRC Reddy, treasury head at Karur Vysya Bank. "We would need OMO purchases of more one trillion rupees till the end of this financial year."

For next week's auction, the central bank has also included the benchmark 6.79% 2034 security for this debt purchase.

It had bought around Rs 5,000 crore of this paper in its first debt purchase in January, but did not include it in the second OMO auction.

The RBI has infused around Rs 2.68 lakh crore into the banking system over the last month through a combination of OMO purchases, secondary market debt purchases, dollar/rupee swap and longer duration variable rate repo auctions.

It has also been providing funds through daily overnight repos, and adjusting the quantum based on the system's requirement.

Nearly two-thirds of these repos have not been fully subscribed, indicating the central bank has been offering funds generally in line or above market requirements.

Separately, the RBI has also announced a four-day variable rate repo auction for 1 trillion rupees which will take place on Monday.

Payment towards Goods and Service Taxes will take place around February 20, with traders estimating outflow in the range of Rs 1.6 lakh crore to Rs 2 lakh crore.