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Tight liquidity may spur RBI move

Hindustan Times Delhi

|

October 27, 2025

The RBI could step in soon likely via open market operation bond purchases or forex swaps

- Subhana Shaikh

Liquidity in India’s banking system has turned negative for the first time in a month, as the Reserve Bank of India’s (RBI) dollar sales to defend the rupee and higher cash withdrawals during the festive season drained funds from the market. The central bank could step in soon to ease the crunch, likely through open market operation (OMO) bond purchases or forex buy/sell swaps, market participants told Mint.

As of October 23, liquidity in the banking system was in a deficit of 2,645 crore. Market participants warn that if the outflows persist, core liquidity—system liquidity after accounting for government cash balances—could slip below 1% of the net demand and time liabilities (NDTL) by the March quarter. This will tighten funding conditions, push up short-term rates and strain banks’ ability to lend during the busy season.

Under its liquidity management framework, the RBI aims to maintain system liquidity, which includes government cash balances, at around 1% of NDTL.

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