RBI has announced a broad set of measures on Oct 9–10th to drain surplus liquidity and stabilise the INR
Download ReportQuantEco Research | MARKET Musings - RBI moves from glut to grip
After the MPC raised the repo rate by 25 bps and shifted to a ‘calibrated tightening’ stance on Oct 7th, the RBI announced a broad set of measures on Oct 9–10th to drain surplus liquidity and stabilise the INR. These include an OMO sale of Rs 250 bn, a higher daily CRR floor of 99%, a special USD sale window for PSU oil companies, tighter FX derivative rules, and a new Foreign Exchange Risk Reserve (FERR) on importer hedges. We estimate that the core liquidity surplus will fall from Rs ~11 tn at end Sep-26 to Rs ~4 tn by the next MPC review in Dec-26, aligning overnight rates with the policy rate and setting the stage for the next rate hike. We see the INR’s knee-jerk appreciation as a relief rally, since triple-digit crude prices and portfolio outflows persist. We retain our call for 25 bps repo rate hikes in both Dec-26 and Feb-27, a 10Y g-sec yield of 7.50% (though continued reliance on OMO sales for liquidity sterilisation could add upside risk), and USDINR at 97 by end FY27, with risks tilted towards further INR depreciation.