The Reserve Bank of India (RBI) announced on Monday a series of initiatives designed to inject more than INR 1 trillion of liquidity into the banking system. This move is widely seen by analysts as a precursor to potential policy easing expected to be addressed next week.
To achieve this liquidity infusion, the central bank will conduct open market operations through the purchase of government securities amounting to INR 600 billion. These purchases will be executed in three tranches of INR 200 billion each on January 30, February 13, and February 20.
Additionally, the RBI has scheduled a 56-day variable rate repo auction with a volume of INR 500 billion, set to take place on February 7. The central bank has also announced a USD/INR Buy/Sell swap auction valued at USD 5 billion, with a six-month tenor, to be held on January 31.
Collectively, these strategies are anticipated to inject INR 1.5 trillion into the banking framework. The RBI emphasized its commitment to "continue monitoring evolving liquidity and market conditions, taking measures as necessary to ensure orderly liquidity conditions."
Recent reports indicate that the liquidity shortfall within the Indian banking system has surpassed INR 3 trillion. This announcement comes shortly before the RBI's interest rate decision, scheduled for February 7. Many economists view these recent initiatives as indicative of an impending rate cut, coinciding with the inaugural policy meeting led by the new RBI Governor, Sanjay Malhotra.
The repo rate has remained steady at 6.50 percent since February 2023. In December, the RBI reduced the cash reserve ratio for all banks by 50 basis points to 4.0 percent, marking the first such reduction since March 2020, consequently injecting INR 1.16 trillion into the banking system.
