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INDIA: New Measures to Inject Liquidity Could Be Precursor for Rate Cuts

INDIA
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The RBI announced a host of additional measures today designed to inject liquidity into the banking system, including bond purchases and dollar/rupee swaps, totalling around $18bln. The central bank said in a statement it "will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions."

  • Calls for an interest rate cut had already been growing amid rising concerns over growth, and the latest measures could be a precursor to monetary policy easing. Analysts cited by Bloomberg say the current cash crunch could lead to tighter financial conditions which could hurt lending and impede growth, while traders who spoke to Reuters suggest the announcements signal that the central bank is more confident about inflation management, with an interest rate cut the next likely step. The RBI meet next on Feb 7.
  • The measures announced include OMO purchase auctions of govt securities aggregating INR 600bln, $5bln dollar/rupee buy/sell forex swap on Jan 31, and another injection of INR 500bln via a 56-day longer tenor repo auction Feb 7, the RBI said.
  • Bloomberg had reported earlier this month that the RBI under Governor Sanjay Malhotra was considering more measures to ease the prevailing cash crunch. 
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The RBI announced a host of additional measures today designed to inject liquidity into the banking system, including bond purchases and dollar/rupee swaps, totalling around $18bln. The central bank said in a statement it "will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions."

  • Calls for an interest rate cut had already been growing amid rising concerns over growth, and the latest measures could be a precursor to monetary policy easing. Analysts cited by Bloomberg say the current cash crunch could lead to tighter financial conditions which could hurt lending and impede growth, while traders who spoke to Reuters suggest the announcements signal that the central bank is more confident about inflation management, with an interest rate cut the next likely step. The RBI meet next on Feb 7.
  • The measures announced include OMO purchase auctions of govt securities aggregating INR 600bln, $5bln dollar/rupee buy/sell forex swap on Jan 31, and another injection of INR 500bln via a 56-day longer tenor repo auction Feb 7, the RBI said.
  • Bloomberg had reported earlier this month that the RBI under Governor Sanjay Malhotra was considering more measures to ease the prevailing cash crunch.