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RBI has drained 60% of excess banking liquidity. What happens next?

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RBI has drained 60% of excess banking liquidity. What happens next?

The banking system's liquidity surplus fell to around Rs 4.45 lakh crore on September 22 from a peak of Rs 11.16 lakh crore on September 6, a decline of about 60%.

The RBI has announced Rs 1 lakh crore of September OMO sales, with the final Rs 25,000 crore tranche scheduled for September 28. The RBI has also used VRRR operations, absorbing Rs 75,026 crore on September 23 at a weighted average rate of 5.24%. Overnight call rates have moved close to the 5.25% repo rate, improving monetary policy transmission as excess liquidity declines. Further absorption will depend on credit growth, tax flows, government spending and currency demand, while heavier bond supply could put pressure on government securities yields.

The RBI's liquidity operations have sharply reduced the banking system's cash surplus, bringing overnight rates closer to the repo rate. The next phase will depend on how much liquidity is absorbed naturally and how much the central bank removes through market operations, experts said. The banking system's liquidity surplus fell to around Rs 4.45 lakh crore on September 22 from a peak of Rs 11.16 lakh crore on September 6, a decline of about 60%. The RBI's focus is now shifting from managing an exceptional liquidity surplus to calibrating the remaining cash without creating an abrupt tightening of financial conditions. Advt

The Reserve Bank of India has sharply reduced excess liquidity in the banking system through open market sales , variable rate reverse repo operations and foreign exchange operations. 16 lakh crore on September 6.


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