By Malavika Kaur Makol and Bhaskar Dutta

       India’s central bank may take measures to inject cash in the banking system before it begins to cut interest rates this quarter, according to some of nation’s biggest fund managers.

       Bandhan Asset Management expects the Reserve Bank of India to add up to 2 trillion rupees ($23 billion) by March via measures including bond purchases, while UTI Asset Management anticipates the authority using foreign-exchange swaps. Aditya Birla Sun Life AMC forecasts the possibility of another reduction in the banks’ cash reserve ratio.

       The RBI is one of the few central banks globally that is yet to cut interest rates despite repeated calls for easing amid a slowing economy. In recent interactions with the central bank, lenders urged the authority to ease a liquidity crunch that may hinder the transmission of any rate cuts.

       “Initially, they should inject liquidity because that is how you oil the market,” said Avnish Jain, head of fixed income at Canara Robeco Asset Management Company Ltd. “If the RBI cuts rates and there’s not enough liquidity, it’s not going to make much of a difference.”

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       India’s banking system was in a deficit of 2.2 trillion rupees as of Jan. 9. That’s near the highest since February 2024 reached in late December.

       The shortfall has driven up the interbank weighted average call rate — a benchmark for overnight borrowing costs — to near the highest levels since April. The rate rose to 6.88% last week, about 40 basis points above the RBI’s current repurchase rate.

       To be sure, the RBI did cut the cash reserve ratio — the proportion of deposits that banks must set aside with the central bank — in its December meeting. It also did a bond buyback this week and has injected cash via short-term repo operations.

       Still, fund managers argue that its efforts aren’t enough as deposit growth slows and economic growth falters.

       “The sense is that they have to bite the bullet on open-market operations,” said Suyash Choudhary, head of fixed income at Bandhan Asset in Mumbai. “The more the central bank delays it, the more they’ll have to do it in a pointed manner in a short span of time.”

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