RBI's double-barrel liquidity boom in May to force the lending figures

Copyright © HT Digital Streams Limit all rights reserved. Economics economists mentioned RBI’s mortgage purchases as unprecedented this year. (Bloomberg) Summary The Record Transport of the Indian Central Bank buys and the transfer of dividends next month is expected to double the liquidity in the banking system, relieve the rates and detect credit. Mumbai: The “unprecedented” shopping tree stop of the Reserve Bank of India is expected to flood the banking system with surplus liquidity, which will not only accelerate the space to accelerate its monetary policy changes but also force the money shooters to lower their rates. RBI’s plan to buy additional effects worth £ 1.25 trillion and the upcoming £ 1.5 trillion dividend transfer to the trade union government – both in May – is expected to double the surplus at the end of June to £ 5 trillion. Liquidity in the domestic banking system touched a surplus of £ 2.36 trillion on April 28, RBI Data shows. An additional surplus will force banks to reduce lending rates at a time when credit growth is expected to delay due to challenges in mobilizing deposits and rising tension in unsecured retail and small business loans, the market participants said. Economists have called RBI’s mortgage purchases this year- £ 5.3 trillion years to date-so unprecedented. In general, RBI has administered £ 7.4 trillion in the banking system using tools such as Open Market Operations (OMO), Cash Reserve Rate (CRR) reduction, and dollar-rupee exchanges since December. Open market operations involve buying or selling government security to influence the money available to banks. Continuous reserve ratio is the percentage of the bank’s deposits to be held at the central bank. “RBI is proactively announced by the OMO as they are the outflow of the outflow, which will take place in the system over the next month or so,” a Treasury trader said at a private bank requesting anonymity. “All the banks have (RBI) said that only if they keep liquidity in a surplus (banks) will pass the rate reduction, otherwise the margins will be affected. RBI has taken the feedback and decides to keep the liquidity in the surplus so that banks can pass on the rate cut,” the person said. Citibank chief economist Samiran Chakraborty said in a report on Monday that the latest OMO purchases of RBI are the biggest “in such a short time”. “The only other time RBI made more than £ 5 trillion OMOs was in the post-Kovid period. But even then it took six quarters before RBI would buy more than £ 5 trillion government bonds during Covid,” Chakraborty wrote. Read also | Mint Explainer: What the new RBI’s new liquidity coverage ratio means for banks RBI’s policy shift with the latest OMO purchases of RBI, economists expect the cost of overnight interbank funds to fall further and act effectively as a rate cut. The weighted average overnight -money rate fell past the repo rate from 6% to 5.87% on Tuesday and is expected to drop further to 5.75%. RBI is aimed at anchoring the overnight call rate-the Inter-Bank Loan For Short-term Funds Rondom the repo rate, which is the interest that the regulator charges commercial banks. Lower the repo rate, the lower interest banks can charge their clients, which in turn can encourage economic activity. Typically, RBI bonds buy effects through an open market industry when the average call rate is higher than the repo rate, or if the distribution of the deposit (CD) is higher. After RBI’s rate reduction with 25 basis points each in February and April, banks lowered their repeted lending rates by 50 basis points, but saw only a 20 basis point in retail deposit rates. According to the bankers, wholesale deposits in the form of deposits, on the other hand, dropped 70-80 basis points. The surplus liquidity will therefore help banks to commemorate their retail obligations faster and reduce the marginal cost of the lending rate (most loans to retail and small businesses are linked to MCLR), they said. Read also | More than a rate cut: RBI’s decision reinforces its double mandate RBI’s latest mortgage purchases at a time when the banking system is already on a surplus liquidity indicates a removal in policy. “While the starting phase of liquidity infusion over the Dec-Mar FY25 was to counteract the liquidity discharge of the RBI’s FX (foreign exchange) interventions and seasonal outflows of cash from the banking system, the recent action on April-May FY26 indicates a removal of policy objectives to the liquidity. policy, ”the research research in a report on April 29. RBI’s monetary policy committee in April changed its policy -standing to ‘accommodating’ from ‘neutral’, suggesting that it was aimed at stimulating the economy through softer interest rates. “The intention of the RBI to maintain surplus durable liquidity, banks will provide a more comfortable environment to further improve credit offerings,” said Citibank Chakraborty in his report. “More than £ 5 trillion OMOs would make an already favorable position for the demand supply of bonds even more comfortable, which may allow the 10-year returns to move below 6.3%.” Read also | ICICI Bank sees that the RBI Repo rate cuts have an impact on margins RBI’s forex challenge separately. RBI is confronted with the challenge of relaxing the forward dollar positions over the next few months. At the end of February, the RBI’s forward dollar sales position rose to $ 88 billion, by nearly $ 30 billion expected to be in April. The central bank has built up a major sales position in the foreign derivative market over the past two years to control exchange rate movements. “RBI is envisaged. As the short dollar forwards for adulthood shows up, you will have to deliver the dollars to the market,” said the unnamed Treasury dealer. “If you deliver the dollars to the market, you will remove higher liquidity. So RBI reduces the balance sheet on the forex side and increases the balance sheet on the rupee side,” the trader added. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More topics #rbi #lending rates #economic growth #Monetary Police Mint Special