To help banks have more money available, the Reserve Bank of India (RBI) planned to inject 2.5 lakh crore rupees into the system through an auction called Variable Rate Repo (VRR) on Wednesday.
The RBI decided on this amount after looking at how much money banks currently have.
The RBI also said that it would conduct VRR auctions every working day in Mumbai, where the money is returned the next working day, until further notice.
RBI Governor Sanjay Malhotra announced that the central bank is dedicated to ensuring there’s enough money in the economy and will take steps to make sure there’s a stable supply of money to meet the system’s needs.
The RBI Governor also mentioned that the RBI is carefully monitoring the rupee and taking all necessary actions to keep the Indian currency stable.
Also Read: Repo Rate Down: India’s Central Bank Makes a Move After Almost 5 Years
According to a report by Morgan Stanley, the RBI is expected to actively manage the money supply and consider additional measures like OMO purchases or FX swaps as the shortage of funds increases towards the end of March. The report also suggests that there’s a risk of interest rates being lowered for a longer period if the economic recovery is slow due to weak domestic demand and global uncertainties.
To support this, the report pointed to the RBI governor’s statement that there’s a balance between stability and efficiency when it comes to regulations and that this balance will be considered when creating regulations.
In good news for banks, Governor Malhotra announced that the implementation of the proposed Liquidity Coverage Ratio (LCR) and project financing rules will be postponed by a year and won’t be implemented before March 31, 2026.
He said that this decision was made because the original deadline of March 2025 didn’t give enough time to implement these guidelines. The RBI doesn’t want to disrupt the financial system and wants to ensure a smooth transition.
Both public and private sector banks had opposed these rules, announced by the previous RBI Governor Shaktikanta Das, fearing they would cause a financial crisis. The heads of banks had discussed this issue with Malhotra shortly after he became the RBI Governor.
