RBI liquidity infusion likely before financial year-end
Why in the news
With the rupee under pressure from West Asia tensions, RBI was expected to ease liquidity before the fiscal year closed.
Key facts
- Cause: RBI sold dollars to cushion the rupee, about $12 billion since the conflict began, draining rupee liquidity.
- Expected response: liquidity injection through monetary operations.
- Aim: hold the call money rate near the 5.25% repo rate, within the LAF corridor.
Tools
| Tool | How it works |
|---|---|
| Open Market Operations | RBI buys government bonds, injecting money |
| Dollar-rupee buy-sell swap | RBI buys dollars now, sells later; temporary rupee liquidity |
Why stable rates matter
It keeps bank borrowing costs low, avoids sudden bond-yield spikes and supports market stability. Tight liquidity would raise overnight borrowing costs and lending rates.
Exam angle
- Repo rate: 5.25%.
- Rate to stabilise: call money rate.
- Instruments: OMOs and swaps.