This initiative comprises two Open Market Operations (OMOs) purchase of Government Securities (G-Secs) and one USD/INR Buy/Sell Swap auction.
About Open Market Operations (OMO)
- Under this, RBI buys or sells G-Secs in the open market to influence the money supply and interest rates within an economy.
- While purchase of G-Secs in the open market increases the high powered money (H), an open market sale of G-Secs decreases the same by an equal amount.
- High-powered money is the sum of commercial bank reserves and currency (notes and coins) held by the Public.
About US Dollar-Indian Rupee swap auctions
- Under it, a bank shall sell US dollars to the RBI and simultaneously agree to buy the same amount of US dollars at the end of the swap period.
- It is done through an auction under which each bank quotes their swap rates (forward premium or discount) and the lowest bidder is accepted first under the programme.
Need for Liquidity Infusion
- Banking system has experienced liquidity challenges since November 2024, due to factors such as tax outflows, significant foreign portfolio investor selling in Indian equities, RBI intervention in forex markets, etc.
- Comfortable liquidity conditions typically help in better pass-through of loan rates, ensure policy transmission, and push economic growth.
Other Liquidity Infusion Instruments
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