The Reserve Bank of India plans to drain $11.7 billion from the banking system through a seven-day variable reverse repurchase auction on July 4.
This move is aimed at withdrawing excess liquidity and aligning overnight borrowing costs with the benchmark repurchase rate of 5.5%.
The central bank's policy framework involves injecting or absorbing liquidity as needed to maintain borrowing costs in alignment with the policy rate.
The recent measure to drain excess cash follows concerns over prolonged low overnight rates relative to the policy rate and the potential impact on inflationary pressures.