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RBI will continue to maintain ample liquidity, says governor Das

RBI chief Shaktikanta Das said the various instruments at the central bank's command will be used at the appropriate time, calibrating them to ensure that ample liquidity is available to the system (Bloomberg)Premium
RBI chief Shaktikanta Das said the various instruments at the central bank's command will be used at the appropriate time, calibrating them to ensure that ample liquidity is available to the system (Bloomberg)

  • 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.

ABOUT THE AUTHOR

Gopika Gopakumar

Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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