RBI Faces Pressure to Drain Liquidity Amid Global Rate Hikes

The Reserve Bank of India (RBI) may need to normalize liquidity before hiking policy rates in response to global central banks raising interest rates. The European Central Bank and US Federal Reserve have already increased their rates, which could prompt the RBI to follow suit.

The market is anticipating more Open Market Operations (OMO) sales to drain excess banking liquidity. This move would help align overnight rates with the repo rate before any further tightening cycle. Even if festival-related spending absorbs some of the liquidity surplus, more OMO sales may still be required.