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In view of the tightening liquidity conditions in the banking system, the Reserve Bank of India on Wednesday said it will take steps, including undertake open market operations (OMO), to support flow of credit to productive sectors of the economy.
During times of liquidity pressure, OMO entails the central bank buying government securities from banks. This leads to unlocking of liquidity for banks.
Currently, the RBI is injecting about Rs 1.5-lakh crore into the banking system daily through the liquidity adjustment facility (LAF), the export credit refinance facility (ECR) and the marginal standing facility (MSF).
Liquidity conditions have been tightening as reflected in the hardening of yields of Government securities. Uncertainties surrounding the Government’s borrowing programme for the second half of 2013-14 have also contributed to this, the RBI said.
Further, prospective effects of banks’ half-yearly account closure, the seasonal pick-up in credit demand, festival-related demand for currency and sluggish deposit growth are also adding to the liquidity pressure.
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