Informist, Thursday, Jun 8, 2023
–RBI Das: System liquidity could rise on deposit of 2,000-rupee note
–RBI Das: Decline in currency in circulation boosted surplus liquidity
–RBI Das: Data suggests skewed liquidity conditions within bk system
–RBI Das: Response to VRRR auctions has been cautious
–RBI Das: Constant VRRR auctions due to surplus liquidity buildup
–RBI Das: Will be nimble in liquidity management
–RBI Das: System liquidity moderation was visible in money mkt rates
NEW DELHI – The Reserve Bank of India conducted multiple variable rate reverse repo auctions over the past one week because of the build-up of surplus liquidity. However, the response by banks in these auctions has been cautious, central bank Governor Shaktikanta Das said today in the Monetary Policy statement.
The liquidity surplus in the banking system has been in excess of 2 trln since Jun 2, bolstered by the ongoing withdrawal of the 2,000-rupee banknotes and the government’s monthly spending. The RBI has drained out excess liquidity of 1.52 trln rupees in total since Friday through variable rate reverse repo auctions of various tenors.
Das said that some banks resorted to the marginal standing facility of the RBI, despite liquidity being in surplus, which indicated liquidity distribution was skewed within the banking system.
As a result, the central bank had conducted a 14-day variable rate repo auction on May 19 in order to address the skewed liquidity situation, the governor said.
“Going forward, the Reserve Bank will remain nimble in its liquidity management, while ensuring that adequate resources are available for the productive requirements of the economy. The Reserve Bank will also ensure the orderly completion of the government’s market borrowing programme,” Das said.
Today, the RBI’s rate setting panel unanimously decided to keep the repo rate unchanged at 6.5%, and it retained the “withdrawal of accomodation” stance with a 5-1 vote.
At the post policy press conference, RBI Deputy Governor Michael Patra clarified that banks are cautious of parking funds in VRRR because of the imminent advance tax outflows, due next week. “They (banks) are holding back money for that purpose. But as you saw, we were persevering in our efforts and the fact we repeated our auctions indicated our purpose, which is what we wanted to convey,” Patra said.
Patra further said that it was important for the central bank to withdraw the excess liquidity from the banking system so that the deposit rates and the lending rates, which were moderating recently, were more aligned with the interest rate cycle.
Governor Das echoed Patra’s comments at the press conference and said, “Our liquidity action also should be seen in the context that our monetary policy stance and the policy rate are well aligned with the interest rates that are prevailing in the market, including banks.”
When asked if the central bank would be happier if the weighted average call rate was between 6.50-6.75%, Das said that the RBI would like to see the call rate aligned to repo rate at 6.5%. Beyond this, a lot depends on the market situation with week-to-week fluctuations in liquidity and the central bank will remain nimble, flexible, and will act swiftly. “We will do two-sided operations as per requirement,” Das said
Patra said that as soon as the call money rate gets aligned with the repo rate, the central bank feels liquidity is balanced. End
Reported by Shubham Rana
Edited by Manisha Baxla
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