RBI should adopt more innovative mechanisms to manage system liquidity because the current liquidity trend shows an average deficit of ₹0.6 lakh crore in FY25, according to a new research report from the economic department of the State Bank of India.

RBI has been managing liquidity through main and fine-tuning operations Average supply of liquidity by way of variable rate repo auctions held in FY25 is ₹1.70 lakh crore, and average absorption through variable rate reverse repo auction amounts to ₹0.32 lakh crore. Durable/core liquidity surplus has come down to ₹1.50 lakh crore as on May 31.

Amidst the recent build-up of government surplus cash balances and the ensuing liquidity deficit, RBI announced a buyback of Government securities to the tune of ₹2.0 lakh crore in May’24

However, market participants have shown little interest in the buybacks, with offered amount of ₹1.24 lakh crore and accepted bids amounting to ₹22,960 crore (11.5% of the notified amount)

RBI has also lowered the auction amount of the Government’s T-bills to a total of ₹72,000 crore on a weekly basis between May 22 and June 26, as against ₹1.32 lakh crore announced earlier. This has released additional liquidity for banks .

“Liquidity, however, still remains in deficit and Government’s surplus cash balances will continue to remain the elephant in the room. RBI should adopt more innovative mechanisms to manage system liquidity,” the report said.

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