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Informist, Monday, May 25, 2026

 

MUMBAI – The Reserve Bank of India is expected to infuse around INR 7 trillion of durable liquidity in the banking system in the financial year 2026-27 (Apr-Mar) through open market operations to counter the draining of systemic liquidity caused by the central bank's persistent intervention in the foreign exchange market, according to economists. The liquidity infusion is expected even after the central bank announced the transfer of a record high surplus of INR 2.87 trillion to the government for FY26.

 

According to a report by IDFC FIRST Bank, the currency leakage of INR 4.6 trillion in FY27 and liquidity drain from the RBI's foreign exchange intervention of INR 4 trillion will weigh on the banking system's liquidity. Infusion of durable liquidity through OMO auctions is likely to keep the banking system liquidity at 1% of the net demand and time liabilities till March.

 

"We continue to believe the need for durable liquidity infusion through OMO purchases could intensify from 2QFY27 (Jul-Sept) onwards, amid persistent liquidity leakage from FX (foreign exchange) intervention and currency leakage, unless adequately offset by measures to boost capital inflows," Madhavi Arora, chief economist at Emkay Global Financial Services Ltd., said in a report. "We estimate RBI may need to infuse nearly Rs7–8trn (INR 7 trillion to INR 8 trillion) through OMOs (in FY27)."

 

IDFC FIRST Bank estimated durable liquidity infusion of INR 7 trillion through OMOs. According to the bank's report, the need for durable liquidity infusion by the RBI will open up during Oct-Mar. In FY26, the central bank had infused INR 8.78 trillion through OMO auctions.

 

The RBI's surplus transfer to the government is expected to push the core system liquidity to INR 4.9 trillion by the end of this month, according to IDFC FIRST Bank's report. The impact of the RBI's dividend on the banking system liquidity will be seen only when the government starts boosting its expenditure. In FY26, the government's expenditure boost began by the end of June.

 

The government's cash surplus was at INR 500 billion as of May 15, sharply down from INR 2.1 trillion as of March. The RBI's net liquidity absorbed, which is an indication of the surplus liquidity in the banking system, fell below INR 1 trillion last week, significantly lower than 1% of the net demand and time liabilities. On Sunday, the liquidity surplus was INR 552.86 billion, up from INR 518.21 billion Saturday and INR 549.77 billion Friday.  End

 

Reported by J. Navya Sruthi

Edited by Rajeev Pai

 

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