The Reserve Bank of India (RBI) may announce open market operations (OMOs) and variable repo auctions on September 30.

Open Market Operations is the simultaneous sale and purchase of government securities and treasury bills by RBI. The objective of OMO is to regulate the money supply in the economy. RBI carries out the OMO through commercial banks and does not directly deal with the public.

According to the RBI, it will respond to the liquidity in the system suddenly turning to a deficit from a surplus after a gap of nearly 40 months.

The six-member monetary policy committee (MPC) of the RBI is meeting this week from September 28 to September 30.

The liquidity in the banking system as reflected on September 20 by net injection of funds became a deficit at Rs 21,873 crore.

The deficit will be nearly Rs. 39, 000 crore if adjusted for the cash reserve ratio (CRR). The Cash Reserve Ratio is the portion that the bank deposits that must be maintained with the RBI.

The shortfall led to the central bank undertaking a variable rate repo auction on September 22 to Rs. 50,000 crores.

The net durable liquidity in the system stands at Rs 4.15 lakh crores, down from Rs. 10.90 lakh crores at the beginning of 2022.

The RBI has so far maintained the stance of "withdrawal of accommodation" to ensure that inflation remains within the target. In August, five members of the monetary policy committee (MPC) of the RBI voted for this stance observing that durable liquidity will continue to be in surplus.

The MPC is widely expected to raise the repo rate by 35-50 basis points to up to 5.90 percent to combat inflation which stands elevated at 7 percent.

The upcoming monetary policy may take note of the deficit and address the issue. The compression has led to inter-bank call money rates rising to 5.80 percent (intra-day) and the weighted average rate standing at 5.64 percent which is more than the policy repo rate of 5.40 percent.

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