RBI Takes Measures To Manage Liquidity Amid Foreign Inflows

New Delhi, Jul 22 (KNN) The Reserve Bank of India (RBI) has implemented strategic measures to manage banking system liquidity following India's inclusion in JP Morgan's globally tracked bond index.

This move has accelerated foreign inflows into local sovereign debt, prompting the central bank to intervene in currency and bond markets to prevent potential inflationary pressures.

Market observers have noted significant shifts in the foreign exchange market since India's index inclusion on June 28, 2024.

The RBI's recent actions include net selling of government bonds through screen-based operations for the first time in eight months, as per RBI data for the week ended July 14.

Additionally, the central bank has engaged in sell-buy swap operations in the forwards market, a standard approach to neutralise the impact of foreign exchange inflows.

The central bank's interventions are designed to manage the approximately USD 1.5 billion increase in foreign investment in fully accessible Indian government bonds since the index inclusion.

While absorbing dollar inflows to prevent rupee appreciation, the RBI must balance this with its monetary policy stance of withdrawing accommodation.

These measures underscore the RBI's commitment to maintaining financial stability and managing inflation risks in the face of increased foreign capital inflows.

The central bank's multifaceted approach demonstrates its vigilance in navigating the complex interplay between foreign investment, currency valuation, and domestic liquidity conditions.

(KNN Bureau)