Open market operations to depend on liquidity, says Khan

However, RBI deputy governor refuses to comment on interest rates

Reserve Bank of India (RBI) Deputy Governor H R Khan on Monday said the central bank would announce open market operations (OMOs) depending on the liquidity in the banking system.

“Depending on the liquidity situation, we will come with OMOs ... we have indicated on a sustainable basis (to keep the liquidity at) plus or minus one per cent (of net demand and time liabilities). If it (liquidity) is beyond that, then we will consider (open market operations),” Khan told reporters on the sidelines of an event here.

Khan’s comments come in the wake of a statement, quoting RBI Governor D Subbarao, that RBI would announce OMOs on July 6. Two wire agencies had quoted Subbarao as telling students in Kozhikode the central bank would announce open market operations worth Rs 12,000 crore on Friday. However, it has so far not announced any bond purchases.

Khan, however, refused to comment on interest rates, saying there would be clarity when the first quarter review of the monetary policy is announced on July 31.

However, in his address on affordable housing, Khan said that the regulator’s focus was macroeconomic stability and low inflation, and these would lead to lower interest rates.

“Our main focus is to maintain macro-economic stability. If there is macro-economic stability, if there is lower inflation, and if there is no asset price bubble, obviously interest rates will come down and houses will be affordable,” he said.