The Reserve Bank of India (RBI) may have to infuse additional liquidity to stabilise financial markets amid rising global uncertainty, according to Neelkanth Mishra, Chief Economist at Axis Bank and Head of Global Research at Axis Capital.CompanyValueChange%ChangeMishra highlighted the challenges posed by geopolitical tensions and the strengthening US dollar, which could make it more difficult for the RBI to manage liquidity.”The economic uncertainty has just gone up dramatically. The US dollar is strengthening as a classic response to de-risking. Everyone jumps back into the US dollar, making it much harder for the (Indian) central bank,” Mishra said.
Also Read: Deutsche Bank forecast RBI rate cuts in February and AprilThe rupee saw its biggest single-day drop on February 3, hitting an all-time low of 87.2 against the dollar after Trump announced new tariffs on China, Mexico, and Canada. However, the US dollar index eased below 109 on February 4, after the tariffs were delayed by a month.Mishra noted that the RBI has had to absorb significant liquidity through foreign exchange interventions and now needs to reverse that. “If there is, give or take, ₹5 lakh crore, that was sucked out because they had to sell dollars, at least that amount of liquidity has to be injected in one form or the other,” he stated.To address liquidity concerns, RBI announced a series of liquidity measures on January 27, including a variable rate reverse repo auction. The central bank also assured that it will monitor market conditions and take further steps as needed to maintain financial stability.Also Read: CLSA believes RBI’s liquidity move does not hint at a rate cutMishra suggested that the RBI could also consider easing credit deposit ratio restrictions or adjusting macro-prudential risk weights to direct credit towards safer sectors.
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