- The liquidity of the banking system has slipped into deficit because of increased foreign exchange interventions and temporary mismatches in government flows.
- There is a possibility of cuts in the cash reserve ratio or CRR requirement for the banks.
- Core liquidity surplus, comprising system liquidity and government balances, has fallen sharply.
- A rate cut is unlikely in the wake of ongoing risk of food inflation.
- Many economists believe that a rate cut can start from February.
- Food inflation needs to correct and sustain at softer levels for headline inflation to come below 5% in the second half of FY25.
A foreign exchange intervention is an action taken by a central bank usually to control exchange rate volatility. This stability is achieved by either buying or selling a currency in the foreign exchange market.
Countries may intervene as well in order to weaken their currencies against those of other countries. This is done in an attempt to make the prices for their exports more attractive to international buyers.
Also read: Inflation
