RBI may absorb some surplus cash

RBI is expected to follow a divergent strategy when it comes to interest rates which are at a historic low and dealing with the Rs 10 lakh crore of surplus liquidity sloshing in the banking system. In response to the pandemic, the central bank had reduced the repo rate at which it lends to banks to a low of 4% and also flooded banks with funds to ensure that they kept lending. Now with macroeconomic indicators improving the central bank may like to have a better grip on liquidity even as it continues to keep rates low and reassure markets that there will be no shortage of funds.

Banks are unanimously in their view that the central bank will adopt a status quo policy and continue to hold the repo rate at 4%. It is also widely expected that the central bank will continue to maintain an accommodativestance.

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