RBI Slows Liquidity Push After ₹8.57 Lakh Crore Injection; Big Surplus Transfer Expected

The Reserve Bank of India (RBI) is likely to hit pause on its recent liquidity-boosting spree after injecting a massive ₹8.57 lakh crore into the banking system since December 2024. Economists suggest this is in anticipation of a large surplus transfer to the central government, potentially ranging from ₹2.5 lakh crore to ₹4 lakh crore, as per Economic Times news report.

Dividend-Driven Surplus Set to Ease Funding Needs

RBI concluded its latest scheduled open market operation (OMO) bond purchase on Monday without announcing further action. As per the report, ahead of the government’s upcoming dividend payment and expenditure, additional liquidity injections may not be necessary.

The central bank has also recently reduced the Cash Reserve Ratio (CRR) and engaged in aggressive bond purchases, forex swaps, and other liquidity tools. However, with a sizable dividend due, market expects the RBI to step back from further durable liquidity support at least until September 2025, the report added.

Bond Yields Slide on RBI Liquidity Pause

Indian bond markets are reacting to the Reserve Bank of India's shift in liquidity stance, with yields declining significantly in recent weeks. The 10-year benchmark bond yield has dropped by 38 basis points since April, while shorter-tenor bonds have experienced even steeper falls.

This downward trend reflects market anticipation of reduced liquidity support from the RBI, especially following a substantial ₹8.57 lakh crore injection into the banking system over the past six months. However, with no new open market operations (OMOs) announced and a large government dividend payment expected, yields are likely to stabilize in the near term.

Markets Eye RBI's Next Move as Surplus Transfer Nears

The RBI is expected to confirm its surplus transfer plan before the end of May. Should the transfer exceed expectations, it could boost government spending significantly while giving the central bank room to pause on liquidity measures.

For now, markets are watching closely especially fixed-income investors and financial institutions for any signals from RBI on when the next policy move might come.

Read More: RBI Likely to Tighten Dividend Rules for Banks: Focus on Capital Strength, Long-Term Value.

Conclusion

The Reserve Bank of India’s decision to slow down its liquidity infusion marks a significant shift in monetary policy after months of aggressive support to the banking system.

While bond yields have responded with a decline, they are expected to stabilize as the market adjusts to the new stance. Investors and market participants should closely monitor RBI’s forthcoming announcements and government fiscal activity to gauge the next phase of monetary policy and its impact on financial markets.

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