2 days ago

RBI Weighs Tools to Manage ₹11.16 Lakh Crore Liquidity Surplus

India’s banks currently have much more money than they immediately need.

This extra money is called surplus liquidity.

Much of it entered the banking system because foreign investors and borrowers brought foreign currency into India.

The RBI wants the overnight interest rate to stay close to its policy rate of 5.25%.

It has tried auctions that temporarily take money out of banks, but banks did not offer as much money as the RBI expected.

Union Bank of India says the RBI may use several tools to hold back more of the excess money.

Some tools work quickly but need to be repeated, while others keep money locked away for longer.

The bank expects the RBI to gradually absorb the surplus while considering future credit growth.

It also expects possible interest-rate increases later in fiscal 2027 if inflation and other risks remain high.

Key facts

System liquidity surplus: ₹11.16 lakh crore
Core liquidity by mid-August: ₹8.05 lakh crore, up from ₹4.82 lakh crore in mid-June
Projected core liquidity: ₹14.17 lakh crore by mid-September, under Union Bank of India’s illustrative model
Foreign-currency inflows: $136.4 billion mobilised, including $127.2 billion through the FCNR(B) window
Foreign-exchange reserves: A record-high $729.3 billion
Policy repo rate: 5.25%, with the RBI seeking to keep the weighted average call rate close to it
Recent VRRR absorption: ₹6.12 lakh crore absorbed through two auctions on September 7, though both were undersubscribed
Possible future rate path: Union Bank of India expects two or three 25-basis-point increases, potentially taking the repo rate to 5.75%-6.00%

financialexpress.com · 2 days ago