RBI, govt discuss liquidity tightness

The government and the Reserve Bank of India (RBI) today reviewed the liquidity conditions in the money markets, including the Centre’s planned borrowings of Rs 10,000 crore later this week.

Sources close to the development said that RBI Governor D Subbarao discussed the issue and various options available before the central bank amid the renewed tightness after an improvement in the last fortnight.

On Friday, the government is scheduled to auction bonds worth Rs 6,000 crore for a new six-year paper and reissue the 7.95 per cent 2032 bonds worth Rs 4,000 crore. This month the government had cancelled the auction of these papers twice due to the tight liquidity conditions in the market.

 

Today, two treasury auctions for Rs 7,000 crore were conducted and the money will go out of the system by the end of the week and put further pressure. Call rates touched a 14-day high of 13.55 per cent today and banks borrowed Rs 56,000 crore from the RBI through the repo route.

The government and the central bank are also discussing the recommendations of the liquidity assessment and injection panel, headed by Finance Secretary Arun Ramanathan, which has proposed that Indian banks with overseas branches be allowed access to the country’s foreign exchange reserves to meet their liquidity requirements. According to a member of the panel, the committee had estimated that the liquidity requirement was in excess of the amount that has already flown into the markets due to steps initiated by the Centre and the RBI.