Ever since the Reserve Bank of India (RBI) undertook emergency measures to shield the economy from the Covid-19 crisis in 2020, liquidity in the banking system has broadly remained at a surplus, although the degree of excess cash shrunk considerably in 2022.
With certain operations undertaken by the RBI in early 2020 set to mature in the next couple of months, the surplus liquidity in the banking system is likely to whittle down to around the neutral zone in coming months, analysts said, with some even warning of a durable deficit setting in.
Liquidity is seen tightening in coming days due to the scheduled redemptions of large-scale long-term repo operations (LTRO) and targeted long-term repo operations (TLTRO). The RBI had broadly conducted these repo operations in early 2020 in order to provide easy access to liquidity and foster financial market confidence at the height of the Covid crisis in India.
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