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RBI will continue to inject liquidity into system via OMO till March-end: Viral Acharya

Amid liquidity crunch in the financial system, the Reserve Bank of India's (RBI) deputy governor Viral Acharya has said that the Central Bank will continue to inject liquidity into the banking system through open market operation (OMO) purchases till the end of this fiscal (FY19). The RBI has conducted OMO purchases to the tune of Rs 1.36 trillion in the current financial year, with over Rs 1 trillion of the infusion in the last three months.

Acharya said 'We expect that this increased frequency and quantum of OMO purchases may be required until end of March, but the exact calibration will depend on sustained changes in the behaviour of currency in circulation and the magnitude of sterilisation for RBI's forex operation, which keeps evolving with external sector conditions'. He further said RBI has also provided infusion of liberal liquidity through term repo in addition to the usual provision via the liquidity adjustment facility (LAF).

On the liquidity crisis faced by the non-banking finance companies (NBFCs) and housing finance companies (HFCs), he said RBI has been watching the market developments closely since the end of August. He said 'We have been in regular touch with the Securities and Exchange Board of India to assess the fallout in terms of mutual fund redemptions and the resulting roll-over risks for NBFCs and HFCs'. Besides, in order to meet liquidity needs, the Central Bank recently had announced that it would conduct purchases of government securities under OMO for an amount of Rs 40,000 crore in December.

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