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In 2018-19, the Reserve Bank of India (RBI) stepped up its open market operations (OMOs). In order to get a sense whether the trend will persist in FY20, a new report from HSBC examines two main drivers of the liquidity leakage in India — currency in circulation (CIC) and the RBI's forex interventions.
India's CIC to gross domestic product (GDP) ratio, which fell sharply after demonetisation, had stabilised by mid 2017. However, as seen in chart 1, CIC began to surge towards the end of 2017.
Typically, CIC is positively correlated with rural demand (chart 2). But, the report suggests this relationship
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