Indian Central Bank Hiking Overnight Fund Injection Post Heavy FX Intervention
By Dharamraj Dhutia
MUMBAI (Reuters) – India’s central bank has aggressively intervened in the Forex (FX) market in its past two sessions, and then added the amount of funds intended to be injected into the banking system through accommodation on Wednesday. We hiked.
The Reserve Bank of India (RBI) has offered to pour 2.50 trillion Rs ($28.85 billion) through an overnight variable report auction.
The bank has joined Rs 1.94 trillion.
Why is it important?
RBI’s constant intervention in the forex market has narrowed the liquidity of the rupee. This closeness in the banking system makes last week’s rate cuts effective as lenders cannot transfer lower rate profits to customers.
Most market participants argue that surplus liquidity conditions are a prerequisite for effective transmissions at lower rates.
context
The liquidity deficit in the Indian banking system was about Rs 2 trillion to Rs 2 trillion within a week on February 11, citing tax spills and aggressive dollar sales by central banks for reasons of jumping. Masu.
RBI sold between $4 billion and $7 billion on Monday as it intervened in the Forex market to support the rupee. On Tuesday, it continued to sell the dollar to expand the currencies it has struggled due to portfolio outflows and uncertainty over US trade tariffs.
The increase in injection volume comes the day after the central bank doubled the share of government securities aimed at purchasing to Rs 400 crore on Thursday. The RBI has injected more than 1.5 trillion Rs in the system in the past month.
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Important Quotes
“As RBI has pledged liquidity injections to support rate reductions, aggressive Forex sales reduces its intentions. RBI has made domestic liquidity in order to maintain the latter around neutrality. We want to sterilize large-scale FX interventions that are very draining. Dhiraj Nim, economist at ANZ Research, said:
($1 = 86.7625 Indian Rupees)
(Reporting by Dharamraj Dhutia, Editing by Sonia Cheema)