RBI Cash Move Seen Targeting Slide in Short-Term Borrowing Costs
The Indian central bank's decision to drain liquidity from the financial system is likely intended to prevent a further decline in overnight borrowing costs, according to analysts.
The Reserve Bank of India announced plans on Tuesday to withdraw one trillion rupees ($11.6 billion) through a variable rate reverse repo auction on June 27. The move comes as key funding and short-term rates stayed below the central bank's main policy rate for a few months — a trend that could lead to asset mispricing.
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