Last week, speaking at the Moneycontrol Global wealth summit, one of the panellists said the Reserve Bank of India (RBI) may have to do more on its part to spur the economic growth by infusing additional funds into the financial system. That echoes well with the pro-growth sentiments at the reconstituted monetary policy committee (MPC) headed by the new central bank governor Sanjay Malhotra. It looks like the RBI will continue to pump in more money to bridge the liquidity shortage in the system and thereby positively influence the credit growth to the productive sectors.
In fact, ever since Malhotra took over as the RBI Governor, the central bank’s stance has unmistakably shifted towards supporting growth. The dogged focus on retail inflation that defined RBI policy for over two years is now making way for a more flexible approach. Liquidity, once scarce, is now flowing back into the system in massive volumes.
The numbers tell the story. Since Malhotra’s appointment on December 11, 2024, the RBI has pumped around Rs 51.28 lakh crore into the banking system through an aggressive mix of short-term and durable liquidity measures. This includes Rs 18.27 lakh crore in normal variable rate repo (VRR) auctions, Rs 31.56 lakh crore in daily VRR auctions, Rs 1 lakh crore in open market purchases, and a foreign currency buy-sell swap worth Rs 1.3 lakh crore.
Banking Central
Liquidity shortages have fluctuated wildly—from Rs 30,000 crore to Rs 3 lakh crore on different days between mid-December and mid-February. While the deficit has now eased to Rs 54,000 crore as of March 5, the RBI is not taking any chances. It has announced fresh open market operations (OMO) worth Rs 1 lakh crore in two tranches (March 12 and March 18) and a USD/INR Buy/Sell Swap auction worth $10 billion on March 24.
These moves are both strategic and urgent, given the fragility of the current financial landscape.
By opting for staggered OMO auctions, the RBI is not just replenishing bank reserves but also sending a clear signal—it will act decisively to maintain stability. The stakes are high. The current liquidity crunch stems from multiple factors: global economic uncertainties, domestic credit pressures, and external market shocks. Left unchecked, these could snowball into a systemic financial crisis. The planned swap auction is another critical step to counter currency volatility, which, if mismanaged, could amplify domestic liquidity constraints.
However, the question is whether what it has done on the liquidity front already is enough? As mentioned above, experts already pitch for an additional injection of Rs 2-3 lakh crore into the banking system to truly support growth. The flip side? A fresh surge in liquidity could stoke inflationary pressures, undoing the RBI’s hard-won price stability.
So, will the central bank keep the liquidity taps open risking a resurgence in the inflation? That's a tough call to make.
(Banking Central is a weekly column that keeps a close watch on and connects the dots regarding the sector's most important events for readers.)
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
