RBI's liquidity management will be preemptive, says governor Malhotra

Mumbai: The Reserve Bank of India’s (RBI) liquidity management would be pre-emptive with sufficient allowance for unanticipated fluctuations in government balances, changes in currency in circulation, and forex intervention, governor Sanjay Malhotra said on Friday.

“The Reserve Bank undertook several measures to provide durable liquidity in December and January. Based on assessment of systemic liquidity and its outlook, we announced and undertook further durable liquidity augmenting measures in the second half of January and February 2026,” said Malhotra.

Experts had said the RBI policy in February would focus on liquidity measures as systemic liquidity remains low, with the government cash surplus high and the drain from forex intervention persisting.

On 22 January, Mint reported that in a pre-policy interaction with RBI, economists and market participants converged on one message: the central bank should focus on easing liquidity in the banking system rather than cutting rates.

Malhotra said in response to the cumulative 125 basis points (bps) cut in the policy repo rate, the weighted average lending rate of scheduled commercial banks has declined over this period till December by about 105 basis points. He added that the weighted average domestic term deposit rate on fresh deposits declined 95 basis points in the same period.

“System liquidity as measured by the net position under the LAF, which is the liquidity adjustment facility, stood at a surplus of ₹70,000 crore on a daily average basis since the last MPC meeting in December 2025. There has, however, been an uptick in February, and now it is almost ₹2 trillion,” said Malhotra.

The governor said G-Sec (government securities) yields mirroring global trends have continued to harden over the last eight months due to a host of factors.

“Going ahead, the Reserve Bank will remain proactive in liquidity management and ensure sufficient liquidity in the banking system to meet the productive requirements of the economy and to facilitate monetary policy transmission,” he said.

The monetary policy committee of the RBI on Friday retained the repo rate at 5.25%, taking a pause after a 25 basis points (bps) cut in the December meeting.