SBI Research flags RBI's 'contradictory' signals as liquidity injection hits ₹2.5 lakh crore

SBI Research has questioned the RBI's liquidity management, saying the central bank's injection of ₹2.5 lakh crore through repo operations since October 19 sends contradictory signals at a time when it is pursuing calibrated monetary tightening.

In its latest Ecowrap report, SBI Research said the RBI's liquidity injections appeared inconsistent with its tightening stance, raising questions about the central bank's attempt to balance multiple policy objectives.

"While maintaining daily call rates requirements at 99% with regular OMO/VRRR, RBI has clearly on the path of calibrated liquidity tightening," the report said.

"However, suddenly RBI had done three repo injection from 19th Oct onwards amounting to ₹2.5 lakh crore which is incoherent in a calibrated tightening mode," it added.

The report said the liquidity operations could signal to the market that the central bank was still trying to balance multiple, potentially conflicting objectives.

"Is RBI moving from 'calibrated tightening' to 'mildly calibrated tightening'?" it asked.

SBI Research said the RBI had adopted a more unequivocally hawkish tone in its October monetary policy communication compared with August.

It noted that the policy resolution, the RBI Governor's statement and the minutes of the Monetary Policy Committee (MPC) were aligned in October, unlike in August, when the three communications had sent divergent signals.

The report said all six MPC members had supported the 25-basis-point increase in the policy rate to 5.50%.

However, only four members backed the shift to a calibrated tightening stance, while two preferred retaining a neutral stance.

SBI Research said the RBI Governor's October statement placed greater emphasis on external conditions and financial stability, while giving less attention to liquidity and monetary policy transmission compared with August.

The report also noted that the rupee had appreciated around 2% from its low of ₹96.8 against the US dollar recorded on May 20, while depreciating marginally by 0.1% from its March 31, 2026 level.

SBI Research recommended that the RBI avoid a two-way liquidity management approach involving simultaneous injections and withdrawals.

“We believe, while concerns on financial stability may have played a part, but it is better for RBI to stay away from two-way liquidity management policy of both injection and withdrawal simultaneously as a two-way policy is applicable only to exchange rate management policy,” the report said.

“We continue to espouse for a widening of the LAF corridor that will be an automatic de facto stabilizer in times of uncertainties,” it added.