RBI to ‘Fine-Tune’ Operations to Manage Liquidity Gush, Das Says

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

India’s central bank plans to conduct more operations to manage any unanticipated surge in banking-system cash due to inflows, Governor Shaktikanta Das said, as the monetary authority grapples with a surfeit of liquidity.

While the RBI has started draining liquidity using the so-called variable rate reverse repo auctions, the central bank “will also conduct fine-tuning operations from time to time as needed to manage unanticipated and one-off liquidity flows so that liquid conditions in the system evolve in a balanced and evenly distributed manner,” Das said in a speech at a conference of bond dealers on Tuesday.

Excess banking system liquidity has climbed to over 8 trillion rupees ($110 billion) on Monday, helped by the central bank’s forex-market intervention, huge inflows into a spate of share sales and government spending.

“As the RBI faces a problem of plenty, we expect further liquidity normalisation in the coming months,” Standard Chartered Plc economist Kanika Pasricha said. The RBI may consider implementing liquidity measures such as long-term reverse-repo auctions and Operation Twists, she said. 

©2021 Bloomberg L.P.