RBI takes measures to ease liquidity
RBI took a few measures to ease liquidity including Rs 8,000 crore bond buyback, to ensure adequate credit flow to the productive sectors of the economy to counter the surge in interest rates following its steps to support falling rupee.
RBI has decided to take following measures to ease liquidity:
- Conduct open market purchase of government bonds of Rs 8,000 crore to inject liquidity. More Open Market Operations (OMO) would be undertaken when required.
- Retain the Statutory Liquidity Ratio (SLR) which is the portion of total deposits banks are required to park in G-Secs at 24.5 % to help banks reduce Market-to-Market (MTM) losses resulting from abnormal market condition.
- Relax SLR requirement by allowing banks to retain SLR holdings in Held To Maturity (HTM) bonds category at 24.5 % until further instructions. Banks have the option of valuing these securities for the purpose of such transfer.
As per RBI the hardening of long term yields has resulted in banks incurring large MTM losses in their investment portfolio and these MTM losses are partially resulting from abnormal market conditions and could be expected to be largely recouped going forward.