For the first time in nearly nearly two months, no bank knocked at the door of the Indian central bank for money. Reserve Bank of India’s (RBI) repo window, which gives money to fund-starved banks at 7.5%, had no taker yesterday. What’s more, RBI took in Rs3,000 crore from the banking system through its reverse repo window at 6%.
This is the first instance of banks ending up parking excess money with RBI since December, when RBI announced a half a percentage point rise in banks’ cash reserve ratio (CRR), sucking out about Rs13,000 crore from the system. Since then, RBI has been infusing liquidity through its repo window, while banks are virtually absent at the reverse repo window to park their excess funds.
The average daily flow into the repo window is more than Rs5,000 crore for the last month, while on an average, banks have been parking only a few hundred crore rupees with it.
Does this mean liquidity has eased ? Bankers and bond dealers do not think so. M.S. Gopikrishnan, senior president of Deutsche Bank, says, “Although this seems like there is enough liquidity in the system, it is going to dry up again, following a government bond auction on Friday. RBI has signalled that it is going to keep a tight check on the banking system and will use all monetary measures to suck out liquidity.”
Two government auctions on Friday will soak up Rs9,000 crore as banks will bid for a seven-year paper and another long-term 29-year paper. Banks are required to buy government paper as they need to invest 25% of their deposits in such securities. Bankers say RBI has been buying dollars from the market to stem rupee appreciation.
Also contributing to the ease in liquidity, is increase in government spending.