RBI Infuses Rs 1.9 Lakh Crore To Revive Economy

Why the Big Cash Boost?

The RBI‘s decision comes after months of tight liquidity in India’s banking system. The system has had a cash shortfall since late 2024. Tax outflows, forex interventions and lower government spending, among other factors, have drained funds. The goal is to ensure that banks have sufficient cash on hand to lend out. This should promote growth for businesses and help the economy remain in motion.

The plan consists of two major components. To begin with the RBI will purchase Rs 1 lakh crore of government bonds in two installments. The activity will occur on March 12 and March 18 for those open market operations (OMO). Second, a $10 billion dollar-rupee swap takes effect on March 24. The system will be flooded with more rupees due to this swap. We pump in together Rs 1.9 lakh crore through these steps.

The Impending Cash Squeeze

For weeks, India’s banks have grappled with a liquidity crunch. By early March, the shortfall reached Rs 2.37 trillion — the highest in more than 10 years. The RBI has been quite proactive since January adding more than Rs 3.6 lakh crore using a mix of tools. That includes bond buys and shorter-term swaps. But the pressure remains as the fiscal year closes.

In February, the central bank also reduced the repo rate by 25 basis points. The cut was the first in almost five years. It was intended to reduce the cost of borrowing and stimulate growth. But because liquidity remained tight, banks could not completely pass on the benefits. This new infusion directly targets that problem.

“It is a courageous step to shore up the system,” said Gaura Sen Gupta, an economist at IDFC FIRST Bank. “It indicates that the RBI is growth-oriented. Liquidity will remain comfortable through March.” Her comments underscore the urgency of the situation and the RBI‘s response.

What’s Next for the Economy?

The infusion could relieve pressure on banks that are scrambling to hit year-end targets. It may also soothe markets, which have been watching bond yields and the rupee closely. The 10-year bond yield fell to 6.6916% on March 5 after the announcement. This is a good sign for investors saying there is hope.

Still, challenges remain. The rupee has been weak due to dollar sales by RBI to stabilize the currency. And tax payments in March might drain cash yet again. The central bank says it will monitor the situation and take action if necessary. This flexibility is vital, as India enters a busy economic phase.

Looking Ahead

The RBI‘s Rs 1.9 lakh crore infusion is an economic lifebuoy. It addresses a cash crunch that threatened to heal growth. If successful, it might unlock lending and revive business confidence. Analysts and economists expect the banking system to end March with a surplus of Rs. 1.6 trillion. That’s a far cry from February’s Rs 180 billion surplus.

Whether to take the next steps will depend on the economy‘s reaction. If liquidity tightens again, the RBI may vary its plans. For the moment, this move affords time and stability. It also demonstrates the central bank’s commitment to supporting India’s growth in difficult times. Markets and businesses will watch closely as the cash comes out.

References:

• Reuters: India central bank announces over $21 billion liquidity infusion
• Bloomberg: RBI to Infuse $21.5 Billion of Cash
• The Hindu BusinessLine: RBI announces liquidity injection measures
• News18: RBI Announces Rs 1.9 Lakh Crore Liquidity Infusion
• Business Standard: RBI announces liquidity infusion steps

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