The present liquidity tightness caused by festival related demand for currencies and rise of government balances, if persists, then the central bank will take action to address the problem, HR Khan, deputy governor of the Reserve Bank of India said today.
However, he expects the tightness to be short lived which is likely to be ease.
"It is (high liquidity deficit) short term, very short term. It may pass off," he said.
Banks were borrowing around Rs 1 lakh crore last week from the repo window of RBI. The deficit in the system above RBI's comfort zone which is ± 1% of banks' net demand and time liabilities.
Khan who was speaking at the sidelines of annual banking seminar Bancon, further added, "if it is slightly longer, we will take action. If it is longish, if the liquidity shortness continues, we will take action."
Khan, however, declined to comment whether RBI will conduct open market operations to infuse liquidity.
The central bank has reduced the cash reserve ratio -- the proportion of deposits that banks need to park with RBI as cash -- by 25 bps to 4.25% -- in October in anticipation of tight liquidity conditions. The CRR cut had infused Rs 17,500 crore of primary liquidity in the system.
