The Reserve Bank of India (RBI) implemented a three-platform approach on Monday to resolve banking system liquidity pressures. The policy committee will meet just ten days after the Monetary Policy Committee&rsquo;s decision about the repo rate. The introduced initiatives aim to provide financial system liquidity of ₹1.5 trillion which lessens the probability of future CRR reduction. In December the Reserve Bank of India poured liquidity worth ₹1.16 trillion into the market through its 50 basis points CRR reduction.
According to experts, this round of liquidity additions will strengthen the chance for a rate reduction when the Monetary Policy Committee conducts its February 5-7 policy review.
Key measures include:
<ol>
<li>Open Market Operations (OMO): The Reserve Bank of India scheduled three transactions to purchase government securities totalling ₹60,000 crores through purchases of ₹20,000 crores each from January 30 until February 20 and February 13. OMOs take priority over CRR changes according to the RBI as its preferred mechanism to create lasting liquidity peaks.</li>
<li>Variable Rate Repo (VRR): A VRR auction of ₹50,000 crores starting on February 7 will run for 56 days to address market liquidity requirements through the fiscal year-end. Money infusion through this program operates until the April monetary policy assessment.</li>
<li>Dollar-Rupee Swap: On January 31 the Reserve Bank of India will perform a 5 billion dollar swap operation containing a six-month timeframe as part of the ₹50,000 crore liquidity infusion strategy.</li>
</ol>
Recent banking system liquidity deficits exceeded ₹3 trillion which compelled the RBI to accelerate its liquidity support measures. Data sources from the liquidity adjustment facility present a ₹3.13 trillion deficiency on Sunday.
The announcement received a positive market response leading 10-year government bond yields to reach a three-year bottom at 6.65% though profit-booking later restored them to 6.68% levels. Forecasts indicate bond yields will stay between 6.60% and 6.62% during the upcoming period.
On Thursday the first OMO sale will present both the 7.59% GS 2029 and 7.18% GS 2037 government bonds to investors.
Market participants expect the RBI to move its scheduled April rate cut to February 2023. Standard Chartered Bank adjusted its projections by expecting two quick consecutive 25 basis point cuts through February and April.
A VRR auction provides similar price effects to a 25 basis point reduction in CRR, producing downward pressure on money market instruments including CDs and CPs.
The RBI's actions favourably impact money markets by reducing interest rates according to Chief Economist Madan Sabnavis of Bank of Baroda.

RBI announces ₹1.5 trillion liquidity measures, including OMOs, VRR auctions, and dollar-rupee swaps, raising chances of a February rate cut.

RBI Infuses ₹1.5 Trillion Liquidity | February Rate Cut Hopes Rise