Nothing much RBI shld do here. Its the fiscal side which can absorb this liquidity much efficiently without causing disruption. This liquidity will reduce on its own, if the deposit liability side increases. Liquidity is just the excess CRR floating around, so deposit increase... https://twitter.com/dugalira/status/1334017939473719299

would absorb excess CRR & reduce liquidity. Again we have to assume that no further FX reserve build will happen & no bond buying from RBI; just assume for the sake of argument So how will deposit side increase (i)credit offtake (ii) govt spending which is financed by borrowing

(iii)FCY inflows- not bought by the RBI.(iv) increase deposits through Gsec purcahses (banks could buy Gsecs from non-banks). What would be the best possible thing to do right now- option (ii). Expand the fiscal side & reduce liquidity in tranches.

Right now the problem is oversupply of papers at the longer end(now i am not contradicting my point about fisc, the oversupply will just be to meet the revenue gap which has been budgeted), so RBI is conducting OT to keep longer end down, but firms wont borrow at the longer end..

right now, they will borrow for working capital and that too when the demand side picks up, for inventory financing etc. So there is no supply right now at the shorter end. When fiscal side will spend then demand for shorter end will also pick up.

And then market dynamics will take care of the equilibrium, with minimal RBI intervention. Contrary to what monetarist believe, inflation is not always a monetary phenomenon. This is cost pushed inflation bcoz of supply side disruption, reducing liquidity will not help inflation.