RBI to inject as much liquidity as required by banks

The Reserve Bank of India (RBI) will provide as much liquidity as is required to the banking system both in terms of overnight and durable liquidity, said governor Sanjay Malhotra. In a post-policy press conference, he said that the job of the central bank is to provide whatever liquidity requirements are needed.

These comments are important in the backdrop of there being no liquidity announcement in the monetary policy despite the fact that liquidity is likely to slip into higher deficit in March on account of tax outflows and likely continuation in the forex intervention of the RBI.

Liquidity in the banking system has been under stress in the last few weeks due to reasons such as tax outflows, heavy intervention by RBI in the forex market to sell dollars, and less government spending.

To support liquidity, the central bank has announced slew of measures such as open market operations (OMO) purchases, USD/INR Buy Sell swap auction and daily variable rate repo (VRR).