The Reserve Bank of India (RBI) is preparing to extend its unprecedented cash infusions into the banking system as it seeks to shield the economy from growing global risks, analysts suggest. This move is expected to involve the injection of up to Rs 4 trillion (approximately $47 billion) through bond purchases and foreign-exchange swaps during the current fiscal year.
According to analysts, the RBI's actions are crucial in ensuring that interest-rate cuts are effectively transmitted throughout the economy, particularly in light of increasing challenges such as the new tariff regime imposed by the United States on Indian exports. The RBI has already injected a staggering $80 billion into the economy since January 2025, and it is anticipated that an additional Rs 2 trillion could be infused in the first half of the fiscal year.
As part of its strategy, the RBI is expected to announce another rate cut on April 9, 2025, following its first reduction in five years, which took place in February. This anticipated cut aims to further bolster economic activity by lowering borrowing costs. "In the past rate-cutting cycles, liquidity was in surplus of at least Rs 2 trillion for transmission to take place," explained Gaura Sen Gupta, chief economist at IDFC FIRST Bank.
The RBI's proactive measures come against a backdrop of significant net maturities—approximately $35 billion—in the forwards market scheduled for April to June, which could create a cash deficit. Upasna Bhardwaj, chief economist at Kotak Mahindra Bank Ltd., noted that the RBI's short forwards position will likely necessitate rollovers, outright foreign-exchange swaps, or additional open-market purchases to maintain liquidity in surplus.
Recently, on April 1, 2025, the central bank surprised market observers by announcing another Rs 80,000 crore in purchases for the month of April. This announcement provided additional support to the bond market, contributing to a decline in the 10-year yield, which fell to 6.46 percent on April 4, the lowest level recorded since January 2022. Analysts at Nomura Holdings Inc. predict that yields could drop even further to around 6.25 percent in the coming months.
The liquidity push initiated by the RBI has successfully shifted the banking system from a deficit of Rs 3.3 trillion in January to a current surplus. This transformation is particularly noteworthy given that the cash squeeze experienced earlier was the most severe in over a decade, partly attributed to the central bank's dollar sales.
Sen Gupta remarked, "The fresh purchases show that the focus of the RBI’s liquidity management is to make the system surplus on a consistent basis." This approach is essential not only for maintaining stability within the banking sector but also for fostering economic growth amid increasing global uncertainties.
In summary, as the RBI prepares to inject substantial liquidity into the banking system, its actions reflect a strategic response to global economic pressures. By continuing to support the economy with cash infusions and potential rate cuts, the RBI aims to create a more favorable environment for businesses and consumers alike, ensuring that India remains resilient in the face of external challenges.
