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The Reserve Bank of India's (RBI) measures, expected to collectively infuse 1.5 trillion rupees into the banking system, come after months of a cash crunch in the banking system that had pushed up overnight and short-term lending rates.
"The urgency that was being felt in the market has been addressed by the RBI through these steps," said A Prasanna, head of research at ICICI Securities Primary Dealership.
"I think a rate cut would be the next logical action," Prasanna said, adding the announcements signal that the central bank is more confident about inflation management.
The RBI's rate-setting panel will announce its policy review on Feb. 7, after the annual federal budget on Feb. 1.
As part of the package, the RBI will buy government bonds worth 600 billion rupees in three tranches and conduct a 56-day variable rate repo auction worth 500 billion rupees on Feb. 7, it said.
It will also conduct a USD/INR buy/sell swap auction of $5 billion for a tenor of six months on Jan. 31.
The RBI "will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions," it said.
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