Mumbai, Feb 12
The Reserve Bank of India (RBI) is set to inject ₹2.5 lakh crore into the banking system through a Variable Rate Repo (VRR) auction on Wednesday. This move aims to improve liquidity in the financial sector.
Key Decisions by RBI:
- The daily VRR auctions will take place on all working days in Mumbai, with funds being reversed the next working day.
- RBI Governor Sanjay Malhotra confirmed that the central bank is committed to ensuring sufficient liquidity in the economy.
- The RBI is closely monitoring the rupee’s stability and will take necessary steps to maintain it.
Economic Outlook & Market Impact:
A Morgan Stanley report suggests that as liquidity tightens by March-end, the RBI might introduce additional measures like:
- Open Market Operations (OMO) purchases
- Foreign exchange (FX) swaps
The report also warns that if India’s economic growth remains slow due to weak demand and global uncertainties, the rate-cut cycle could be extended further.
Relief for Banks – Liquidity Norms Delayed:
- RBI Governor Malhotra has postponed the implementation of the Liquidity Coverage Ratio (LCR) and project financing norms by one year, moving the deadline to March 31, 2026 instead of March 2025.
- This decision was made to prevent financial disruptions, as banks had raised concerns about a potential liquidity crisis.
Both public and private sector banks had opposed these norms, introduced under former RBI Governor Shaktikanta Das, fearing they would strain the financial system. Bank executives had discussed their concerns with Malhotra soon after he took charge.
The RBI’s latest steps aim to support economic stability while ensuring a smooth transition for banks.
