Part 5/9:
The Consequences of Continued Intervention
The repeated interventions by the RBI, while necessary from a stabilization perspective, have their drawbacks. Notably, the liquidity that is extracted from the market in the course of selling dollars leads to further challenges for the banking sector, which is already facing a seasonal bottleneck.
In light of the pressing economic backdrop, the RBI has increased the volume of available funds to support the banking system. Recently, the central bank offered a record infusion of 2.5 trillion rupees—or approximately $30 billion—through overnight operations, fueled by its need to support an increasingly fragile economic infrastructure.