RBI Announces Liquidity Support Measures Amid GST Outflows

The Reserve Bank of India (RBI) has unveiled fresh steps to maintain surplus liquidity in the banking system, aiming to facilitate faster monetary policy transmission and buffer against temporary liquidity pressures such as GST outflows.

Liquidity Operations Announced

• Open Market Operation (OMO):
  • RBI will purchase government securities worth ₹40,000 crore
  • Auction scheduled for April 17
• Variable Rate Repo (VRR):
  • ₹1.5 lakh crore liquidity injection for 43 days, reversing on May 30
  • Also scheduled for April 17
• Additional OMOs:
  • RBI will conduct ₹20,000 crore OMO purchases each on April 22 and April 29

Objective: Maintain Liquidity Surplus at 1% of NDTL

• Target Surplus: RBI aims for system liquidity to be around 1% of Net Demand and Time Liabilities (NDTL), equivalent to a ₹2 lakh crore surplus
• Why Now:
  • Seasonal GST outflows around the 20th of each month often cause a liquidity crunch
  • April has so far seen an average daily surplus of ₹1.7 lakh crore, a major rebound from the ₹3 lakh crore deficit in January

RBI’s Policy Transmission Focus

• RBI Governor Sanjay Malhotra reiterated the importance of liquidity in aiding interest rate transmission
  • “We are watchful and provide sufficient liquidity so that this transmission of policy rates into the interest rate happens quickly.”
• Economists say RBI is acting pre-emptively to ensure borrowing costs align with repo rate movements

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