India’s banking system has experienced significant relief as the cash crunch has more than halved, thanks to proactive liquidity measures by the central bank amidst slowing economic growth.

As of 4th February, India’s cash deficit stood at 660.4 billion rupees ($7.6 billion), a sharp decline from 2.2 trillion rupees on 30th January. This reduction was driven by the RBI’s liquidity injection, which also led to a drop in the weighted average call rate from 6.88% to 6.50%, aligning with the central bank’s policy rate.

Government spending and the RBI’s actions, including dollar sales, contributed to easing the liquidity shortage, which had reached 3 trillion rupees in late January. 

However, HDFC Bank economist Sakshi Gupta highlights the need for further liquidity infusion due to continued pressure on the rupee and expected tax outflows in March.

The RBI has already injected over $7 billion of the planned $18 billion through open-market bond purchases and foreign-exchange swaps.

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