The Reserve Bank will not rush to withdraw the excess liquidity

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Mumbai, Ta. Saturday, January 23, 2021

The Reserve Bank's announcement to withdraw some of the liquidity that was poured into the financial system during the Corona era could pose a challenge to the government's exercise in raising money from the market.

The finance minister is likely to announce a massive borrowing program in the next financial year in the February 1 budget. The government is being forced to raise money from the market in view of the impact of the corona on the country's economy and the decline in government revenue through taxes.

During the Corona period, the Reserve Bank of India (RBI) cut interest rates and poured a lot of liquidity into the financial system to increase retail lending. The RBI has announced a phased withdrawal of some of this liquidity.

The Reserve Bank is aware of the fragile state of the economy and therefore will not rush to withdraw liquidity. Doing so would have a direct impact on the government raising money, said one analyst. He also said that there would be efforts by the Reserve Bank to address the liquidity imbalance in the market at present and would not tighten the money supply.

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