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Markets pin hope on RBI as rupee defence, festive flush strain liquidity
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India’s markets look to the RBI for support as rupee defence and festive liquidity drain squeeze system liquidity.
Liquidity in India’s banking system has turned negative for the first time in a month, as the Reserve Bank of India’s dollar sales to defend the rupee and higher cash withdrawals during the festive season drained funds from the market. The central bank may step in soon with open market bond purchases or forex buy/sell swaps. Market participants warn that persistent outflows could tighten funding conditions and push up short-term rates.