RBI sees no stress on liquidity in short term

RBI sees no stress on liquidity in short term

Bangalore: The Reserve Bank of India is closely monitoring liquidity in the banking system and does not see any sign of stress as of now, going by the current call rates, one of its deputy governors said on Monday.

Shyamala Gopinath was responding to a query on whether the RBI would conduct open market operations to tide over an expected cash crunch in mid-June, when quarterly advance tax payments by corporates would fall due.

“We are closely monitoring the liquidity situation and looking into various aspects of liquidity management. As of now, we don’t really see a stress as such if you look at the call rates."

The interbank call money rate ended at 7.30/35 % on Monday a tad above the repo rate of 7.25%, which is the rate the central bank monitors for any signs of acute cash stress.

Liquidity, which is currently running at a deficit of around 60000 crore ($13.4 billion) compared with the RBI’s comfort zone of around 50000 crore, is expected to tighten beyond 1 trillion in mid-June when corporates make their advance tax payments for the first quarter.

Earlier in the day, another deputy governor of the RBI said banks may use the newly introduced Marginal Standing Facility in case liquidity tightens sharply next week.

Gopinath said the RBI hopes to conduct the government’s market borrowing programme for the 2011/12 fiscal year smoothly.

The government is scheduled to borrow a gross 4.17 trillion from the market in the current financial year ending in March 2012, of which 2.5 trillion would be raised in the first half ending September.

“The RBI has raised rates. Repo rates have gone up. But it entirely depends on how the market bids for the auction. But we do hope that the government borrowing programme goes smoothly," she said.

Gopinath, however, did not provide any specific comments on the recent volatility in the government bond yields.

“We don’t say, you know, about the market volatility. It is really what the markets are doing based on the market’s own demand-supply and the reaction to various developments that happen, not only domestic developments, but also international developments."

Gopinath reiterated that the central bank would continue to monitor the various aspects of the market and would ensure that the short-term interest rates were in line with its expectation.

The 10-year benchmark government bond yield, which rose 68 basis points (bps) to 8.48% on 30 May - its highest since its 8 April issuance - on inflation and tight cash worries, tumbled 19 bps last week, its biggest weekly fall in a year, on weak economic data and comments by a finance ministry official that yields needed to come down.

The 2021 bond yield ended at 8.26% on Monday.