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RBI Actively Focusing on Rate Transmission
Business Standard
|April 03, 2025
Amid fiscal consolidation, heavy lifting by RBI to support economy
With a liquidity infusion of close to ₹8 trillion in the last three months, and showing intention to do more, the Reserve Bank of India (RBI) seems to be in a hurry to speed up monetary transmission of policy rates to the lending and deposit rates by easing financial conditions.
Bond prices surged after the central bank's surprise announcement of ₹80,000 crore open market operation (OMO) to pump liquidity into the banking system by purchasing bonds in April, with the 10-year benchmark yield declining 10 bps on Wednesday to close at 6.48 per cent, the lowest level in three years.
The bond purchase move is seen as a proactive step ahead of the monetary policy committee (MPC) review next week where the rate-setting panel is widely expected to deliver another 25 basis points (bps) rate cut. The central bank is seen to be preparing the ground for monetary transmission before cutting the policy repo rate.
"We think the RBI is now actively targeting abundantly surplus liquidity in order to ensure transmission of the rate-cutting cycle," said Suyash Choudhary, head-fixed income, Bandhan AMC.
This story is from the April 03, 2025 edition of Business Standard.
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