RBI to withdraw ₹7 lakh crore via reverse repo amid record liquidity surplus
India's central bank is conducting a large-scale sterilization operation as liquidity in the banking system reaches an all-time high. Market participants expect bond yields to rise slightly despite ongoing global risks.
The Reserve Bank of India (RBI) announced a 30-day variable rate reverse repo auction targeting ₹7 lakh crore. This move aims to absorb excess cash from banks while retaining flexibility for early redemption. The operation occurs as the banking system faces a record liquidity surplus exceeding ₹10 lakh crore.
Market participants noted that total inflows into RBI special schemes have reached $136 billion, significantly surpassing initial projections of $80-90 billion. Economists suggest the central bank may utilize additional tools like sell-buy dollar swaps and bond sales to manage this surge.
Indian government bonds are expected to gain ground following the announcement, though a broader rally remains limited by high global oil prices and fiscal concerns. Benchmark yields on the 2036 bond were trading near 6.97% at close.
Equity markets closed marginally higher on Friday with the Nifty reaching 23,898. Foreign institutional investors net sold $314 million in Indian stocks while domestic buyers advanced funds by a larger amount. The rupee strengthened against the dollar, marking its best weekly performance in five weeks.
