RBI Signals Proactive Liquidity Management to Support Transmission

The Reserve Bank of India said it will remain proactive in managing liquidity to ensure effective monetary policy transmission. Governor Sanjay Malhotra said liquidity operations will be pre-emptive, calibrated to address potential imbalances arising from foreign exchange intervention, government cash balances and leakage due to currency in circulation.

Expanding on this stance at the post-policy press conference, Malhotra stressed that providing liquidity is a core responsibility of the central bank. He said the RBI has a wide array of instruments at its disposal to manage liquidity conditions, including open market operations, and will not hesitate to deploy them as required.

The Governor underlined that monetary policy transmission across markets and bank lending rates has been “excellent” so far, reflecting both earlier rate actions and supportive liquidity conditions. Going ahead, the RBI’s operational objective would be to keep overnight money market rates closely aligned with the policy repo rate, reinforcing the policy signal.

Malhotra reiterated that liquidity management would remain proactive and pre-emptive, rather than reactive, with the central bank acting ahead of emerging mismatches in systemic liquidity. He added that the RBI would ensure the availability of sufficient liquidity in the system so that the intended monetary policy impulse is transmitted smoothly and efficiently across the financial system.

The central bank also made it clear that maintaining orderly market conditions remains a priority, even as the policy rate and stance are held steady. Adequate liquidity, the RBI noted, is essential to prevent undue volatility in short-term rates and to support credit flows to the productive sectors of the economy, thereby reinforcing the effectiveness of monetary policy.