Currency in circulation continues to grow fast, may impact liquidity

While there are several instruments in the RBI's disposal, the most effective one for infusing durable liquidity is bond purchase from the secondary market

Liquidity in the system may get impacted, especially around the festive season, as currency in circulation is on the rise. 

Economists expect the central bank to come up with more bond repurchase, apart from Rs 30 billion worth already done, to tide over the liquidity tightness in the coming days. 

Tightness in system liquidity will impact banks planning for festive offers as they would need to absorb rising cost caused by the liquidity shortage. Low liquidity raises rates in money market instruments. Since the marginal cost-based lending rate (MCLR) of banks are linked to money market instruments too, the interest cost for