Liquidity pressure persists despite CRR cut more OMOs on Friday

Liquidity continues to remain beyond the comfort level of the Reserve Bank of India (RBI), even as the Cash Reserve Ratio for banks has been reduced to 5.5 per cent from this week.

A liquidity deficit in the band of one per cent of net demand and time liabilities is preferred, RBI had said in its third-quarter policy review last week. The central bank’s comfort zone works out to around Rs 60,000 crore. However, on Tuesday, banks borrowed Rs 1.4 lakh crore from RBI’s repo window, while overnight call money rates touched an intra-day high of 9.5 per cent.

The rates in the Collateralised Borrowing and Lending Obligations market also edged closer to nine per cent on Tuesday. “This could be the impact of RBI intervention in the currency forwards market during November-December,” said a senior treasury official from a large public sector bank. RBI had participated in the forwards market to the tune of $16.2 billion in November.

In its policy review, the central bank had announced a cut of 50 basis points in CRR to 5.5 per cent, to ease liquidity pressure. It had said this would mean another Rs 32,000 crore or so should become available. Like Tuesday’s much larger need, banks had borrowed Rs 1.2 lakh crore yesterday from RBI’s repo window at 8.5 per cent and Rs 5,000 crore from the additional Marginal Standing Facility window at 9.5 per cent.

“Infusion of Rs 32,000 crore is not enough when the market is borrowing about Rs 1.5 lakh crore every day. Perhaps a further cut of 50 basis points would help in liquidity management,” said an official of another Mumbai-based public sector bank.

RBI has announced a round of open market operations (OMOs) to be conducted on Friday, to buy government securities of Rs 10,000 crore. A deputy governor on Tuesday said the central bank may use OMOs as a tool to infuse liquidity when needed. RBI has infused Rs 70,000 crore via OMOs since November.

As part of this year’s market borrowing programme, the government is scheduled to raise Rs 13,000 crore on Friday. So far, the government has raised Rs 4.35 lakh crore of the Rs 5.1 lakh crore planned.