By dharamraj dhutia
Mumbai (Reuters) – The central bank of India increased the quantum of funds which it intended to inject into the banking system thanks to a night infusion on Wednesday, after being aggressively on the market Changes (FX) in the last two sessions.
The Reserve Bank of India (RBI) had offered to pay 2.50 billions of rupees ($ 28.85 billion) thanks to a variable rate auction overnight, the largest infusion of the central bank in a Only day in more than a year.
Banks are subscribed to 1.94 Billion of rupees.
Why is it important
The constant intervention of the RBI on the foreign exchange market has tightened the liquidity of the rupee. This tightness in the banking system will make the drop in rates last week, as lenders will not be able to transfer the advantages of lower prices to customers.
Most market players have argued that the conditions of excess liquidity are a prerequisite for the effective transmission of lower rates.
CONTEXT
The Banking Liquidity Deficit of India has quadrupled in less than a week to approximately 2 billions of rupees on February 11, traders citing tax outputs and sales of aggressive dollars by the central bank among the reasons for the jump .
The RBI sold between $ 4 billion and $ 7 billion on Monday when it intervened on the FX market to support the rupee. He continued to sell dollars on Tuesday to strengthen the currency that had trouble due to wallet outlets and uncertainty around American trade rates.
The increase in the quantity of infusion occurs one day after the central bank has doubled the proportion of government titles which it aims to buy at 400 billion rupees on Thursday. The RBI allowed more than 1.5 billion of rupees in the system in the last month.
CHART
Key quotes
“Since the RBI has promised a liquidity infusion, which will also support the rate reduction of rates, any aggressive sale FX will reduce this intention. I believe that the RBI will want to sterilize all the major FX interventions which drain the Sizable domestic liquidity, To keep the latter around neutral neutral neutral in accordance with the position of monetary policy, “said Dhiraj Nim, an economist at Anz Research.
(1 $ = 86,7625 Indian rupees)
(Report by Dharamraj Dhutia; edition by Sonia Cheema)
