RBI move to check slide in short-term borrowing costs

Key funding and short-term rates stayed below the policy rate for a few months

- SUBHADIP SIRCAR & RUCHI BHATIA

The Reserve Bank of India's decision to drain liquidity from the financial system is likely intended to prevent a further decline in overnight borrowing costs, analysts said.

The RBI move on Tuesday to withdraw ₹1 lakh crore through a variable rate reverse repo auction on June 27 comes as key funding and short-term rates stayed below the central bank's main policy rate for a few months—a trend that could lead to asset mispricing.

Policymakers are seeking to support economic growth while keeping inflation in check. However, they also want to avoid a scenario where excessively-low market rates reignite inflationary pressures.