Record $133bln of inflows from non-resident Indians has flooded the banking
system, reversing a months‑long RBI push to attract dollars to bolster reserves
and defend the rupee. The surge has pushed liquidity higher and driven overnight
rates below the RBI’s 5.25% policy rate, effectively lowering borrowing costs
below the stance policymakers desire. To prevent excess liquidity from stoking
inflation, the RBI has sold bonds and absorbed over 1 tln rupees (~$10.4bln) of
liquidity and markets expect further measures in coming days. With food and oil
prices adding to inflationary pressure, calls for a rate hike next week have
risen; prospects of a more hawkish RBI, alongside a global rise in bond yields,
have already pushed Indian yields sharply higher and unsettled investors.
