RBI to drain liquidity without destabilising markets: Viral Acharya

RBI has been mopping up liquidity from market using cash management bills, open market sale of bonds

The Reserve Bank of India (RBI) will continue to drain surplus liquidity from the banking system gradually without destabilising the market, Deputy Governor Viral Acharya said after the central bank's monetary policy meeting on Wednesday.

The central bank has been mopping up excess liquidity from the market using cash management bills and open market sale of bonds since a shock ban of high-value notes by Prime Minister Narendra Modi left banks flush with cash.

"We remain in touch with the government to make our tool kit for this task more complete," Acharya said. "In the meantime, we will continue with surplus liquidity management using instruments indicated in the April policy."

"Our intent is not to actually destabilise or shock the market in any way," he added.

The RBI is "comfortable" with interest rates being "slightly" higher than its stated preference of having a difference between the repo rate and the inflation target of 1.75 per cent,  Acharya said.

The difference now stands at 2 per cent, after the RBI cut the repo rate by 25 basis points to 6 per cent, above the central bank's inflation target of 4 per cent.

"I think we are just slightly outside of the range of 1.75 percent and we are comfortable with that," Acharya said.

"RBI will review MCLR system of benchmarking lending rate by banks," Acharya said.