Gokarn says cash crunch temporary, announces 4th OMO

Attributing the current cash crunch in the system to advance tax payouts by companies, the Reserve Bank of India (RBI) today said it would announce another tranche of government bond buyback scheme to ease liquidity constraints.

"The immediate pressure on liquidity is due to the advance tax payout. We have had about Rs 69,000 crore going into the government kitty last week and now we will have to wait and see. Obviously, that money is going to be spent over a period of time," RBI Deputy Governor Subir Gokarn said on the sidelines of a round table organised by Ficci here.

Gokarn said RBI would announce another open market operation (OMO) today but did not quantify the amount. Later in the day, the RBI announced Rs 10,000-crore bond buyback scheme from Thursday.

The current pressure is "short-term" and RBI expects things will normalise over the next few days, he added.

To a particular question, Gokarn said, "I do not think we want to put the open market operation [through which RBI infuses liquidity in the system] in a calendar. We are basically responding with our OMOs to the emerging liquidity conditions."

"To the extent that we see there is tightness, as I just said, today's situation is temporary because of the advance tax pressure, but even before that and after that there may be pressure and we will respond to that accordingly.

"We are announcing another round of OMO today. And we will follow that pattern," Gokarn, who is in charge of the monetary policy said.

Since the last mid-November, it had announced three buyback of government securities of Rs 10,000 crore each.

RBI's fresh OMO initiative comes in the wake of the deep cash crunch in the system. Yesterday, banks borrowed Rs 1.66 lakh crore -- which was a yearly high-- from the temporary liquidity adjustment window of the central bank.

Today, the lenders reportedly borrowed a tad less at Rs 1.64 lakh crore from the short-term borrowing window called repo. Banks borrow from this facility at 8.5%.

The RBI is trying to infuse liquidity into the system as there are no takers for the government debt in a sapped market, even as the government is trying to finish its borrowing plan for the fiscal. The government is slated to borrow Rs 4.7 lakh crore from the market this fiscal and it has already taken in 68% of that.