Liquidity pressure likely to ease next week: RBI

The Reserve Bank of India (RBI) today said that it expects the tight money supply condition, created by the huge outgo towards payment on spectrum by telcos, to ease by next week.

RBI's statement came a day after the central bank decided to refrain from sucking out liquidity from the system, even as it took other steps to rein in high inflation.

"The liquidity situation has eased from extreme tightness... We expect further easing in the next week or so as the government starts salary disbursement. There will be some redemption from bonds...There will be further easing of the liquidity situation," RBI Governor D Subbarao said during an interaction with analysts.

He, however, added that the money supply situation will not result in a complete return to the surplus situation.

"We expect that there (money supply) will be more in deficit mode than in surplus mode," Subbarao said.

Yesterday, the Reserve Bank had refrained from raising the cash reserve ratio (CRR), a requirement for banks to keep cash with the central bank, as the liquidity is already tight in the system.

This was done despite the RBI raising concerns over high inflation and upping its key short-term rates.

The system faced shortage of money supply after over Rs 1 lakh crore went out of the system as telcos made payments towards acquiring spectrum for high-speed telecom and broadband services and corporates made advance tax payments.

In its monetary review yesterday, the RBI had said, "A significant development was that the Liquidity Adjustment Facility (LAF) window of the Reserve Bank, after remaining in surplus mode for nearly 18 months, switched into deficit mode towards the end of May 2010 and has remained there since."