For the first time since April 2010, India’s banking system has recorded a cash deficit of ₹3.3 lakh crore. This deficit, as measured by banks’ borrowings from the Reserve Bank of India (RBI), highlights a sharp contraction in systemic liquidity, raising concerns about borrowing costs and overall financial stability.
To address the liquidity deficit, the RBI has resorted to injecting funds into the system. Between December 16, 2024, and January 15, 2025, the central bank infused ₹11.5 lakh crore through Variable Rate Repo (VRR) operations with short maturities of 1 to 7 days. Despite these efforts, liquidity pressures persist.
The rupee has faced consistent pressure due to extended foreign outflows and a surge in global oil prices. On January 14, the rupee hit an all-time low of ₹86.70 against the US dollar, losing 2.5% of its value in three months. Defending the currency has led to substantial spending of foreign reserves, sparking debate about the long-term sustainability of this approach.
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Published on: Jan 27, 2025, 3:40 PM IST
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