RBI governor Shaktikanta Das said that the central bank will continue to use OMO purchases, Operation Twists and reverse repo to maintain this liquidity
Das assured that RBI stands ready to take further measures to assure market participants of access to liquidity and easy financing conditions
RBI governor Shaktikanta Das on Friday assured that the central bank will continue to maintain ample liquidity by using various instruments at the appropriate time. Speaking post the 3-day Monetary Policy Committee meeting, Das said that the central bank will continue to use OMO purchases, Operation Twists and reverse repo to maintain this liquidity.
“We will continue to respond to global spillovers in order to secure domestic stability with our liquidity management operations. The various instruments at our command will be used at the appropriate time, calibrating them to ensure that ample liquidity is available to the system," he said.
Lately RBI has been intervening in the forex market to manage volatility in exchange rate. This intervention by RBI in both currency and bond market has resulted in flooding of liquidity, as RBI is buying foreign currency and bonds at the same time to meet the objectives of checking volatility in exchange rates and supporting growth by keeping interest rates low.
Das assured that RBI stands ready to take further measures to assure market participants of access to liquidity and easy financing conditions. He also added that supporting growth is RBI’s paramount objective while ensuring that financial stability is maintained and preserved at all times.
Bond market responded positively with the yield on 10 year G-sec falling by 2 basis points to 5.827% from the previous close of 5.846%.
Market was divided over whether RBI will review its ultra-loose liquidity policy as short term borrowing rates have been trading below its benchmark policy rate. Few market participants felt that RBI should wait before it withdraws the liquidity surplus amounting to ₹9 trillion. They felt that the current liquidity surplus is helping economic recovery by pushing consumers to invest. Others however felt that RBI should announce measures like Market Stabilisation Scheme (MSS) bonds to sterilise the excess liquidity as it is inflationary and could complicate pricing of risk for lenders.