Banks, economists press for liquidity as MPC meet nears

In a pre-policy interaction with the Reserve Bank of India (RBI), economists and market participants broadly converged on one message: the central bank should focus on easing liquidity in the banking system rather than cutting interest rates, two economists and two treasury officials told Mint.

- Subhana Shaikh

With growth and inflation seen as largely stable, the discussion centred on tools to address liquidity, which have remained under strain due to persistent RBI intervention in the foreign exchange market to curb excessive rupee volatility, strong credit growth and advance tax outflows.

RBI's Monetary Policy Committee will meet on 4-6 February, which will be its last such meeting of the current financial year. After delivering a 25 basis point rate cut last month, market participants said it is unlikely the rate-setting panel will cut rates again. Market participants said there is little appetite for a rate cut at this stage.