India's Liquidity Deficit Soars to Decade-High Amid Central Bank Dollar Sales
India's banking system liquidity deficit has surged to its highest level in over a decade, driven by the central bank's dollar sales aimed at curbing rupee volatility.
As of Thursday, the banking system cash deficit reached 3.3 trillion rupees ($38.2 billion), the highest since at least 2010, according to a Bloomberg Economics index.
The Reserve Bank of India (RBI) has reportedly been selling dollars over the past year to support the depreciating rupee.
Amid the cash crunch, substantial bond purchases by a group typically including the central bank sparked speculation of RBI intervention. The "others" category, which usually includes monetary authorities, purchased government bonds worth 72.22 billion rupees ($840 million) on Thursday, marking the highest since June 2023.
The RBI's liquidity support efforts include a daily variable repo rate auction. Economists believe the RBI needs to proactively infuse liquidity to ease the cash crunch.
The 10-year note yield fell one basis point to 6.72% on Friday, down five points for the week.