RBI Actions Cut Banking Liquidity Surplus by 55%
Bond sales, foreign-exchange operations and rupee-support measures have helped reduce India’s banking-system cash surplus to ₹4.92 trillion from a record ₹11.16 trillion in about two weeks.
The Reserve Bank of India’s sustained liquidity-management measures have helped more than halve the banking system’s surplus cash, as the central bank works to contain excess liquidity at a time of heightened inflation concerns.
India’s banking-system liquidity surplus declined to ₹4.92 trillion on Monday, falling more than 55% from a record ₹11.16 trillion roughly two weeks earlier, according to bankers cited by Reuters. (Reuters)
LIQUIDITY SNAPSHOT
₹11.16 trillion — Recent record liquidity surplus
₹4.92 trillion — Surplus liquidity on Monday
55%+ — Decline in roughly two weeks
The unusually large pool of cash followed substantial foreign-currency mobilisation by Indian banks. Reuters reported that lenders raised around $133 billion through the RBI’s diaspora deposit scheme, contributing to the surge in rupee liquidity. (Reuters)
Excess liquidity can complicate monetary-policy transmission because abundant cash can keep short-term borrowing conditions easier. It is attracting additional attention as higher oil prices and inflation risks remain important considerations for policymakers.
A significant part of the liquidity reduction has come through open-market bond sales and foreign-exchange swaps, according to bankers. Advance-tax and Goods and Services Tax payments have also withdrawn money from the banking system. (Reuters)
RBI LIQUIDITY ACTION
₹750 billion — Bonds sold by RBI over the past week
₹250 billion — Another bond sale planned for Monday
₹3.4 trillion — Funds parked by banks with RBI through reverse repos
The central bank sold ₹750 billion worth of bonds over the previous week and plans another ₹250 billion sale on Monday. Banks have also parked ₹3.4 trillion with the RBI through reverse-repo operations, according to the report. (The Economic Times)
Earlier in September, RBI Governor Sanjay Malhotra had said the central bank had multiple tools available to manage surplus liquidity, including open-market operations and foreign-exchange swaps. He said the objective was to maintain appropriate liquidity conditions and keep overnight rates aligned with the policy rate. (Reuters)
The reduction in surplus liquidity is also being closely watched ahead of upcoming monetary-policy decisions. Expectations of tighter policy have increased as inflation has firmed, although any future change in the repo rate remains a decision for the RBI’s Monetary Policy Committee.
For the banking system, the sharp decline from record surplus levels indicates that the RBI’s liquidity-management operations are already having a substantial impact on the amount of excess cash available in the financial system.