Reserve Bank of India Governor Sanjay Malhotra said the central bank has multiple tools available to drain excess liquidity, including open-market bond sales and foreign-exchange swaps.
The banking system's liquidity surplus has risen above ₹10 trillion, Reuters reported. When surplus cash becomes too large, overnight money-market rates can fall below the policy repo rate and weaken monetary-policy transmission.
The RBI's challenge is therefore two-sided: support financial stability and currency management while ensuring that short-term market rates remain aligned with the policy stance. Bond sales, variable-rate reverse repos and FX swaps can all affect the amount of rupee liquidity in the system.