RBI is likely to extend the special liquidity facility beyond 2nd July to ease unusually tight credit conditions caused by increased cash outflow in 3G and Broadband Wireless Access Spectrum licenses payments and advanced tax outgo, experts said today.
RBI on 28th May had announced second round of Liquidity Adjustment Facility (LAF) window for banks for up to 0.5 per cent of their deposits, scheduled to expire on July 2.
However, experts opine, RBI, which is also concerned about high inflation, may tinker with interest rates only after it is satisfied with liquidity levels in the system.
"If the RBI's agenda is to hike rates, they will have to bring in some liquidity in the system before doing so, given the current conditions. In my view, it is likely that they will extend the facility for at least till the July policy," Development Credit Bank's Associate Vice President, Anoop Verma told PTI here.
Around Rs 1,36,000 crore have gone out of the system over the past few weeks on account of payment by telecom operators for 3G auction waves, Broadband Wireless Access and payment for Advance Tax payments.
There are concerns that the credit crunch caused by excess money outflow may cause paper shortfall for banks, if they decide to borrow through additional liquidity facility.
Banks, who provide government securities to borrow through repo window, have the statutory requirement of maintaining 25 per cent of their deposits.
However, the apex bank has assured that banks can seek waiver on penal interest if they fall short of maintaining the Stautory Liquidity Ratio (SLR) requirement.
The RBI is expected to hike repo and reverse repo rates (short-term lending and borrowiing rates) at its quarterly review of annual monetary policy on July 27, while some analysts expect it may act before that.
So far in 2010, the RBI has hiked its policy rates by 0.5 per cent and cash reserve ratio by 1 per cent.
Banks have been borrowing huge amounts from the apex bank's repo window at 5.25 per cent in the range of Rs 50,000-Rs 70,000 crore in the last two weeks.