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Informist, Friday, Feb. 7, 2025

 

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--RBI Malhotra: Endeavour of RBI is to provide as much liquidity as required 
--RBI Malhotra: We are always watchful, will be nimble on providing liquidity 
--RBI Sankar: Transient liquidity changes due to govt cash balances 
--RBI Sankar: Sensitising state govts to manage cash efficiently
--RBI Sankar: System to manage states' surpluses has worked well
--RBI Malhotra: Our job to provide liquidity, not the government's 

 

MUMBAI – The Reserve Bank of India will be watchful and remain nimble in providing the required amount of liquidity to the banking system, Reserve Bank of India Governor Sanjay Malhotra said Friday. "In the last couple of months, it has been the endeavour of the RBI to provide as much liquidity as is required... We have introduced, for the first time, regular pre-announced everyday overnight repo operations to give confidence to everyone that this window is available to everyone as far as transient liquidity is concerned," Malhotra said at the post-monetary policy press conference.

 

Banking system liquidity has fallen sharply into deficit over the last couple of months, prompting the central bank to first cut the Cash Reserve Ratio by 50 basis points in December to 4.00%. This was followed by a raft of measures in late January--ranging from open market purchase of government bonds to dollar-rupee buy-sell swaps--that aimed to add around INR 1.5 trillion of liquidity by the third week of February. The RBI has also been buying bonds in the secondary market. The cumulative impact has helped cool down money market rates, although market players point out that the central bank will need to do more as liquidity conditions will tighten sharply in March.

 

"The Reserve Bank is committed to provide sufficient system liquidity. We have taken a number of steps in this regard. We will continue to monitor the evolving liquidity and financial market conditions and proactively take appropriate measures to ensure orderly liquidity conditions," Malhotra had said earlier in the day in his statement at the conclusion of the Monetary Policy Committee's meeting.

 

Deputy Governor T. Rabi Sankar said the central bank has been sensitising state governments to manage their cash position efficiently. "Transient liquidity, day-to-day liquidity changes because of many reasons. But the larger changes there happen mainly because of government cash balances. So managing day-to-day liquidity is essentially managing the impact of the government's expenditure and revenues and the resultant cash balances. That is the job that we do and that is the job we will continue to do on a day-to-day basis," Sankar said. "As far as how state governments' surplus affects the central government's cash balance and therefore has an impact on liquidity in the system, this is something we have always been sensitising state governments whenever we interact with them."

 

Surplus cash held by state governments is automatically invested in the so-called 14-day intermediate Treasury Bills. Despite these instruments currently offering a very low rate of interest of just 1.35%, states' investments in them exceeded INR 2.5 trillion at the end of 2023-24 (Apr-Mar). These funds, once invested in the T-bills, add to the Centre's cash balances.

 

Sankar said the RBI discusses with states how they can manage their cash efficiently. However, the expenditure decisions are theirs to make and the arrangement in place to manage liquidity "has worked fine". Governor Malhotra added that the Centre and several states were managing their liquidity efficiently and the central bank was not looking to the government for the provision of liquidity.  End

 

Reported by Siddhi Chauhan

Edited by Saji George Titus

 

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