RBI to take steps to address liquidity deficit: Gokarn

Says the central bank generally conducts an open market operation to deal with stress in liquidity

The Reserve Bank of India (RBI) will continue to take steps to address the liquidity deficit in the system, its deputy governor Subir Gokarn said here today.

"We are doing an OMO (open market operation) of Rs 12,000 crore on Tuesday. That is based on the assessment of current liquidity situation. The issue of government balance is also being taken into account. We are seeing some stress and are responding to that," Gokarn told reporters on the sidelines of an event organised by the Confederation of Indian Industry (CII).

The OMO on December 11, 2012 will see RBI buying Rs 12,000 crore of securities that will mature in 2017, 2020, 2022 and 2026. The central bank has bought securities worth Rs 93,643 crore so far this financial year.

Gokarn added there may be further stress on the system liquidity as advance tax payments are due next week. "It is our ongoing attempt to assess liquidity (situation) and make sure the pressure is not severe," he said.

He hinted that OMO will be the preferred route for the regulator to tackle liquidity deficit. "OMO gives us the flexibility to respond in very short order to the stresses. So, if we see them remaining in the system then we have the capacity to respond," Gokarn said.

Gokarn also suggest that the situation was not alarming and the liquidity deficit is still within RBI's comfort zone. "I think ultimately we have to look at the call rate as an indication of where the stresses are. It has been close to repo rate, which is the objective. It has not shot up, which would suggest that liquidity (deficit) is within comfort zone," he said.

Separately, he reiterated that inflationary pressures are likely to ease from next quarter.

Gokarn was hopeful that there will be some stability in the local currency exchange rate in the near-term as depreciation of rupee contributes to inflationary pressures.

"Whatever causes it, whether due to political developments or global developments, rupee depreciation contributes to inflation – particularly through its impact on unavoidable imports like oil. So, that concerns remain and it is not something we refuse to acknowledge. We hope that things stabilise both on domestic and global fronts where rupee finds some stability," he said.