RBI Unveils Liquidity Injection to Alleviate Money Market Pressures: Major Brokerages
Click to start listening
Synopsis
The RBI's recent liquidity measures, amounting to Rs 1.5 lakh crore, aim to ease money market stress and lower rupee rates. Upcoming OMO auctions and monetary policy meetings are set to impact lending and investment strategies in the near term.
Key Takeaways
- The RBI has announced measures totaling Rs 1.5 lakh crore to boost liquidity.
- Focus shifts to the Union Budget on February 1 and the MPC meeting on February 7.
- Brokerages predict a 25 basis point cut in the repo rate.
- Three OMO auctions for Rs 60,000 crore are planned.
- Liquidity measures could stimulate retail lending and consumption.
New Delhi, Jan 28 (NationPress) The recent actions taken by the Reserve Bank of India (RBI), amounting to Rs 1.5 lakh crore for injecting liquidity into the banking ecosystem, are anticipated to alleviate the pressures in the money markets. Furthermore, the initiation of bond acquisitions is expected to lower rupee rates via signaling and expectations that the RBI will refrain from tightening liquidity conditions, with a potential need for additional open market operations (OMO) purchases, as stated by leading brokerages on Tuesday.
As per a report from HSBC, attention will now shift to the Union Budget scheduled for February 1 and the more critical RBI monetary policy committee (MPC) meeting on February 7, with a growing likelihood of a cut in the repo policy rate (HSBC Economics predicts a 25 basis point reduction in the policy rate).
"We foresee OMO auctions aimed at acquiring government bonds to lead to a compression of term premiums and we maintain our buy recommendation on 10-year government securities," they added.
The central bank is set to conduct three OMO purchase auctions for government bonds totaling Rs 60,000 crore.
The auctions, each worth Rs 20,000 crore, will take place on January 30, February 13, and February 20.
Additionally, a six-month FX swap (USD/INR buy/sell swap) auction valued at $5 billion will occur on January 31, translating to approximately Rs 43,000 crore of rupee liquidity.
Moreover, a long-dated variable rate repo auction of Rs 50,000 crore will be conducted on February 7.
The 56-day term will ensure banks' liquidity requirements are met through the end of March.
According to a report from Emkay Global Financial Services, a shift in the liquidity cycle serves as a significant boost for domestic equities, and investing in the BFSI sector is a wise move in the short term.
"This is complemented by other favorable factors — earnings forecasts remain strong through January 2025, and valuations have become increasingly reasonable. While this may not represent the absolute market low, we believe it is an opportune moment to gradually invest in stocks with reasonable valuations," stated Emkay Global.
Brokerages assert that additional liquidity measures and a rate cut in February would have a more pronounced effect.
"However, we believe this must be accompanied by the relaxation of lending restrictions placed on banks and NBFCs since late 2023, particularly concerning unsecured loans. Such measures would revive retail lending momentum and encourage a consumption rebound in the latter half of CY25. Given the limited space for fiscal stimulus, this should serve as a crucial countercyclical strategy," Emkay Global emphasized.
