RBI doesn't see stress on liquidity in short term

Deputy Governor Shyamala Gopinath says central bank hopes the government’s borrowing programme will go on smoothly.

The Reserve Bank of India (RBI) did not see any stress on liquidity in the short-term as indicated from ruling call rates, Deputy Governor Shyamala Gopinath said today.

Earlier, market participants were expecting a liquidity crunch in the system on the back of advance tax outflows, which is due by June 15.

“We are closely monitoring the liquidity situation and are looking into various aspects of liquidity management. As of now, we don’t see a real stress on liquidity as indicated in ruling call rates,” Gopinath said here on the sidelines of launching mobile banking products of Canara Bank.

She, however, declined to comment on whether the central bank would conduct open market operation in June in order to ease any possible crunch in liquidity.

At an event in Mumbai, RBI Deputy Governor K C Chakrabarty said banks might use the newly introduced marginal standing facility (MSF) in the middle of this month when liquidity was expected to tighten sharply owing to advance tax payments.

“Every quarter it happens. I don’t think there is anything different in it. A new type of liquidity management facility has come. So, it will be tested. There can be problem at any time. The system has to adjust itself,” Chakrabarty said.

He was speaking on the sidelines of an event on new financial reporting and risk management.

RBI introduced MSF during the annual policy statement, which allowed banks to dip below one per cent of their statutory liquidity ratio to avail cash from this window. This facility will be available to banks at 100 basis points over the repo rate.

On the government’s borrowing programme, Gopinath said RBI was hopeful the process would go on smoothly.

“Government borrowing entirely depends on the market and how they bid for the auction. But, we do hope that it will go on smoothly,” Gopinath said.

On the possible direction of policy rates, she said it would depend on the evolving circumstances.

“We have increased policy rates by 50 basis points in the last credit policy review. We are also closely watching the various data coming from the market. Our future actions will depend on our own assessment of the circumstances as they evolve,” she added.

The apex bank has raised policy rates by nine times in the last 14 months in order to contain rising inflation rate. Impact of this policy rate hike has moderated economic growth in the recent time as shown in the latest IIP data.

About quality of foreign fund flow, she said that the central bank was not concerned about the quality of fund flow aspect as of now.

“Both government and RBI prefer more foreign direct investment into the country. However, we are not concerned about the quality of fund flow in the present circumstances,” she said.