Money Mart To Be Kept Liquid, Says Reddy

The Reserve Bank of India (RBI) is unlikely to deviate from its monetary policy stance stated in the October credit policy, said Y V Reddy, deputy governor of the central bank. Reddy was speaking to press at the sidelines of the '4th Money and Finance Conference' organised by the Indira Gandhi Institute of Development Research in Mumbai.

Reddy said: "The RBI will continue to follow a policy of maintaining adequate liquidity in the money market."

The governor, however, declined to comment on the central bank's view on the current rally in the government paper. "The money market should move on the perception of market players. Participants should not look at the regulator for a signal," Reddy said.

He, however, said the recent spate of open market auctions was based on the central bank's perception of the market, liquidity and interest rate.

The government paper yields, which had been going down steadily since the credit policy announcement, moved up a bit after the Rs 8,000 crore of open market auction on Friday. Money market dealers said that market participants read the open market operation as a signal towards the central bank's discomfort with the very low yields.

On the condition of liquidity, the deputy governor said that it is evenly balanced. "The daily liquidity adjustment facility has been very effective and the market was able to adjust with inflows and outflows through that window." he said.

In his speech at the conference Reddy said: "It is not only the reform, but also the market participants' ability to appreciate the reform can make a financial system more efficient."