Indian banks pump $21 billion to support growth

The Reserve Bank of India (RBI) said on March 5 that it will inject $21 billion in rupee liquidity into the banking system to boost economic growth.

The Reserve Bank of India has pumped more than Rs 4,500 billion into the banking system since mid-January 2025. Illustrative photo

The Reserve Bank of India (RBI) said on March 5 that it will inject $21 billion in rupee liquidity into the banking system to ease lending conditions and boost economic growth.

The RBI said in a press release that it "will continue to monitor developments in liquidity and market conditions and take appropriate measures to ensure smooth liquidity flow."

As part of these measures, the RBI will conduct two open market operations totaling Rs 1,000 billion ($11.50 billion) on March 12 and March 18. In addition, the central bank will also conduct a USD/Rupee swap transaction worth $10 billion on March 24.

As of March 4, 2025, the liquidity deficit of Indian banks was Rs 204.2 billion, the lowest since December 15, 2024.

Liquidity conditions have been tight since mid-December 2024, mainly due to tax outflows from the financial system, RBI selling dollars in the foreign exchange market to stabilise the rupee and lower-than-expected government spending.

The central bank cut interest rates by 25 basis points last month. Abundant liquidity conditions usually help improve the transmission of lending rates, ensure policy effectiveness and boost economic growth.

According to the latest data, the Indian economy grew 6.2% in the fourth quarter of 2024 thanks to increased government spending and personal consumption.

The measures announced on March 5 show that "the focus of monetary policy now is to support growth by easing financial conditions and providing necessary liquidity," said Gaura Sen Gupta, an economist at IDFC FIRST Bank.

After this injection, core liquidity, including banking system liquidity and government cash balances, will maintain a steady surplus of Rs 1,600 billion at the end of March, compared to a surplus of Rs 180 billion on February 21, Ms Sen Gupta said.

The central bank has pumped over Rs 4,500 billion into the banking system since mid-January 2025.

The cash injection includes Rs 1,390 billion from bond purchases, around Rs 1,310 billion through foreign exchange swaps and Rs 1,830 billion from repo auctions maturing in early April.

The bond market and the rupee are expected to react positively, while term premiums are expected to fall as these measures show “skillful liquidity management by the central bank,” said Aditi Gupta, economist at Bank of Baroda.

Source: https://congthuong.vn/ngan-hang-an-do-bom-21-ty-usd-ho-tro-tang-truong-377084.html