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RBI Halves India's Cash Overhang with Bond Sales, Forex Intervention
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CNBC TV18•22-09-2026, 16:59
RBI Halves India's Cash Overhang with Bond Sales, Forex Intervention
- •The Reserve Bank of India's sustained actions, including bond sales and foreign exchange swaps, have reduced the banking system's liquidity surplus by over 55%.
- •Surplus banking system liquidity dropped to ’4.92 lakh crore, down from a record ’11.16 lakh crore two weeks prior, following a large influx from the RBI’s diaspora deposit scheme.
- •Excess cash poses an inflation risk, exacerbated by high oil prices and a weaker rupee, prompting the RBI to drain liquidity.
- •The RBI sold ’75,000 crore in bonds last week and plans another ’25,000 crore, alongside an estimated $1 billion daily in foreign exchange swaps over the past 10 sessions.
- •Analysts anticipate three consecutive 25-basis-point rate hikes starting October 2026, bringing the policy repo rate to 6.00% by fiscal 2027, contingent on further liquidity withdrawal below ’3 lakh crore.
Key Questions Answered
Surplus banking system liquidity fell to ₹4.92 lakh crore, marking a 55% decrease from a record ₹11.16 lakh crore approximately two weeks prior.
The Reserve Bank of India has utilized open-market bond sales, foreign exchange swaps, and reverse repos where banks parked ₹3.4 lakh crore to reduce excess cash.
Foreign lenders such as Citi, HSBC, and Deutsche Bank have called for an interest-rate hike in October, with ANZ expecting three consecutive 25-basis-point hikes starting in October 2026 to reach a policy repo rate of 6.00% by the end of fiscal 2027.
