MUMBAI (Reuters) – India’s central bank on Monday said it will double the quantum of security purchases under its next tranche of open market operation on February 13 to manage the liquidity deficit in the country’s banking system.
The Reserve Bank of India (RBI) will purchase government securities worth 400 billion rupees ($4.57 billion), as against 200 billion rupees announced earlier, it said in a release.
The banking system liquidity has stayed in deficit for eight consecutive weeks as of the week ended February 7, and the deficit currently stands at 1.33 trillion rupees.
The RBI cut its key interest rate by 25 basis points on Friday to boost the sluggish economy but did not announce any liquidity-boosting measures, which led to an uptick in bond yields.
At the time, RBI Governor Sanjay Malhotra had said the central bank would continue to monitor the evolving liquidity and financial market conditions and proactively take appropriate measures to ensure orderly liquidity conditions.
The central bank has already infused over 1 trillion rupees through bond purchases and dollar/rupee swaps and another 500 billion rupees through a 56-day repo auction. ($1 = 87.4530 Indian rupees)
(Reporting by Siddhi Nayak; Editing by Savio D’Souza)
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