You are here: Home » Economy & Policy » News
Business Standard

RBI may extend special liquidity step beyond July 2: experts

Press Trust of India  |  Mumbai 

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.


Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Fri, June 25 2010. 16:54 IST