RBI may conduct OMO this week to ease liquidity, say bankers

MUMBAI: The Reserve Bank of India (RBI) is likely to conduct an open market operation (OMO) purchase this week to infuse liquidity into the banking system, which is further going to tighten on account of advance tax payments, say bankers.

The liquidity shortfall in the banking system at present, according to them, is pegged at Rs 50,000-60,000 crore, on account of intervention by the apex bank in the foreign exchange market to curb volatility in the rupee.

It is set to reduce further as companies will have to file their advance tax by September 15.

"Nearly Rs 50,000-60,000 crore of additional liquidity will go out of the system due to advance tax payments. RBI is expected to pump in liquidity into the system through OMOS this week," a treasurer of a state-run bank said.

Under the OMOS, RBI buys certain government securities from the market, which thereby provides liquidity to the system.

The size of this week's OMO buyback could be Rs 10,000 crore, the treasurer said.

"When RBI intervenes in the foreign exchange market, the rupee liquidity is being sucked out of the system. So to that extent, the RBI will pump in liquidity," said another banker. The central bank has been intervening into the foreign exchange market to check rupee volatility, which touched a lifetime low of 72.11 against the US dollar in the intra-day trade Thursday. It closed at 71.73 Friday, after opening at 71.95.

The size of this week's OMO buyback could be Rs 10,000 crore, the treasurer said