Excess Liquidity Post Demonentisation: How RBI Is Handling It?

Posted By:
Subscribe to GoodReturns
For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts

    The demonetization move which resulted in the scrapping of high value notes of Rs. 1000 and Rs. 500 from the system to curb malpractices of illicit financing, money laundering, tax evasion etc has flooded the banking system with huge cash reserves.

    Excess Liquidity Post Demonentisation: How RBI Is Handling It?

    To tackle the situation, the apex bank has come in and is acting as a dam to prevent any unbalanced liquidity state to harm the system. To add to the situation is the unprecedented dollar flow which too cannot be ignored as then the forex market go in a tizzy. The dollars have made their flow both in the equity and debt markets to the tune of $9 billion and $18 billion respectively from the beginning of this year.

    And for each dollar that the central government buys, to keep the currency in check and maintain the balance rupee infusion has to be done. The move is being deferred for long to counteract the already cash reserve with the government on account of demonetisation. Additionally, in respect of the currency forward contracts which is a commitment or contract to fulfill obligation to purchase dollars at a future date, in the last six months post demonetisation, the levels of greenback with the Indian government has reached the highest in three years time in net position.

    So, mainly the apex bank is confronting the issue of high cash, on the ground, by deferring cash infusion via forex operations. Also for the first time in the history of RBI, it has put its net forwards contract in the maturity span of 3-12 months time such that when these contracts get matured, there is substantial reduction in the excess liquidity in the system.

    Goodreturns.in

    Story first published: Wednesday, August 23, 2017, 13:03 [IST]
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    Get Latest News alerts from Goodreturns

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more