Weekly policy watch: RBI liquidity move, IIP data, forex reserves in focus | Economy & Policy News

India’s policy and economic calendar this week will focus on liquidity conditions in the banking system, industrial activity and the country’s external financial position.

RBI to absorb ₹2.5 trillion through VRRR auction

The Reserve Bank of India will conduct a seven-day variable rate reverse repo (VRRR) auction on Monday to absorb ₹2.5 trillion from the banking system.

The move comes after banks parked ₹95,970 crore with the RBI under a three-day VRRR auction on Friday, against the notified amount of ₹1.5 trillion.

A VRRR auction is used by the central bank to temporarily absorb excess liquidity from the banking system. Net liquidity in the banking system stood at a surplus of ₹3.5 trillion on Thursday, according to the latest RBI data.

The weighted average call rate (WACR), which is the operating target of monetary policy, stood at 5.19 per cent on Thursday, compared with 5.16 per cent previously. The Standing Deposit Facility (SDF) rate is currently 5 per cent. It allows banks to park surplus funds with the RBI without providing collateral and forms the lower end of the central bank’s policy corridor.

Industrial output data to show growth momentum

India’s industrial production data will be released on August 28.

Industrial output growth rose to a 23-month high of 7.3 per cent in June, up from a downwardly revised 5 per cent in May, according to the National Statistics Office (NSO). The increase was supported by a favourable base effect and broad-based growth across all four major sectors.

The Index of Industrial Production (IIP) stood at 123.1 in June, compared with 114.7 a year earlier. Mining and quarrying, manufacturing, electricity and gas supply, and water supply, sewerage and waste management all recorded growth during the month.

Manufacturing data to track factory activity

Manufacturing production data will also be released on August 28.

Manufacturing output grew 7.8 per cent in June, sharply higher than the 5.2 per cent growth recorded in May. The sector accounted for most of the rise in overall industrial production.

Of the 23 industry groups covered under manufacturing, 19 recorded year-on-year growth in June. Electrical equipment recorded the strongest increase at 34 per cent, followed by motor vehicles, trailers and semi-trailers at 17.5 per cent and food products at 10.8 per cent.

Four industry groups—petroleum products, chemical products, wearing apparel and wood products—recorded a decline. Electricity and gas supply grew 10.6 per cent in June, compared with 10.3 per cent in May, remaining the fastest-growing major segment. Electricity generation from renewable sources rose 7.3 per cent, while non-renewable generation increased 13 per cent.

Forex reserves to reflect external sector strength

Foreign exchange reserves data will be released on August 28, offering an update on India’s external financial position. India’s forex reserves rose by $9.905 billion to $716.907 billion in the week ended August 14, according to the RBI.

The increase followed a $14.136 billion jump in the previous week, taking reserves to $707.002 billion as of August 7.

India’s reserves had reached a record high of $728.494 billion in the week ended February 27 before the West Asia conflict led to several weeks of declines as the rupee came under pressure and the RBI intervened in the foreign exchange market.

For the week ended August 14, foreign currency assets, the largest component of the reserves, increased by $7.225 billion to $581.851 billion.