Informist, Thursday, Feb 8, 2024
--RBI Das: Liquidity conditions driven by exogenous factors
--RBI Das: Remain nimble, flexible in liquidity mgmt
--RBI Das: To remain nimble through two-way liquidity ops
--RBI Das: To conduct two-way main, fine-tuning liquidity ops
--RBI Das: To deploy instruments for both frictional, durable liquidity
--RBI Das: To deploy appropriate mix of tools to modulate liquidity
--RBI Das: Will ensure money market rates move in orderly manner
--RBI Das: Do not read monetary policy stance in terms of liquidity
--RBI Das: We try to keep call rate around the repo rate
--RBI Patra: Objective to keep weighted-avg call rate around repo rate
--RBI Patra: Were nimble with our action to bring call rate to 6.5%
--RBI Das: Mkts, banks take time to adjust to evolving liquidity
--RBI Das: Liquidity situation fluctuating due to various factors
--RBI Das: Depending on situation will use appropriate liquidity tool
MUMBAI – The Reserve Bank of India will deploy an appropriate mix of tools to modulate liquidity in the banking system, Governor Shaktikanta Das said in his statement today post the outcome of the Monetary Policy Committee meeting. He also added that the central bank will continue to conduct two-way operations--variable rate repo and variable rate reverse repo--for fine-tuning the liquidity.
"On our part, the Reserve Bank remains nimble and flexible in its liquidity management through two-way main and fine-tuning operations, in both repo and reverse repo," Das said.
He added that the central bank will deploy an appropriate mix of instruments to modulate both frictional and durable liquidity to ensure that money market interest rates evolve in an orderly manner and financial stability is maintained.
Since Friday, the RBI has announced six variable rate reverse repo tenders. The central bank had earlier conducted 11 variable rate repo auctions since December in order to infuse liquidity into the banking system. The liquidity deficit, which rose to a record 3.46 trln rupees in January, has since improved to 1.01 trln rupees due to the central and state governments' month-end spending.
At the end of trade on Wednesday, the liquidity deficit in the banking system was at 1.53 trln rupees, as against 1.01 trln rupees at the end of trade on Tuesday, according to data from the RBI.
With the widening of liquidity in the banking system, the weighted average tri-party repo rate rose above the repo rate of 6.50%, as against below the repo rate in the past few trading sessions.
The governor said that liquidity conditions were being driven by exogenous factors, which were likely to be corrected in the foreseeable future, aided by the central bank's market operations.
The impact of the evolving liquidity conditions has varied across the financial market, Das said. "While the short-term rates have fluctuated, long-term rates have remained relatively stable, reflecting better anchoring of inflation expectations as indicated in the softening of term spread in the G-sec (government securities) market."
In the money markets, the reversal of liquidity facilities under both the standing deposit facility and the marginal standing facility, even during weekends and holidays, has facilitated better funds management by the banks, he added.
In the post-policy conference, the governor said that the market should not read the monetary policy stance in terms of liquidity. At the outcome of its three-day meeting, the Monetary Policy Committee maintained the "withdrawal of accommodation" stance, with a vote of 5-1. External member of the panel, Jayanth Varma voted for a stance change to neutral.
Ahead of the policy review outcome, some money market participants were expecting the stance to be changed to "neutral" on the basis of the RBI's injection of liquidity since mid-December, through 11 variable rate repo operations of varying tenors. However, the central bank has conducted six variable rate reverse repo auctions since Friday due to a fall in overnight rates below the policy repo rate of 6.50%, which rolled back stance change expectations.
Both Das and RBI Deputy Governor Michael Patra emphasised that the objective of the central bank is to keep the weighted average call rate around the repo rate. "...there are times when there are autonomous drivers of liquidity like government balances which go through tectonic shifts and the market takes time to adjust," Patra said.
"They (banks) are unsure of the future direction of this. That's why the call rate went where it went. But we were nimble in our actions, and we brought it down to the repo rate. That is our endeavour," he added. In January, the weighted average call rate hovered around the MSF rate of 6.75% for most of the month. Since Friday, it has been near 6.50%.
The market and banks make their own analysis of liquidity situations and that analysis may change even during a single day, Das said. This was the reason why the RBI had chosen to conduct multiple variable rate reverse repo operations in the same day, the governor said. The central bank conducted two liquidity mop-up operations each on Tuesday and Wednesday.
"So far as the RBI is concerned, we will remain active in our liquidity management. What instruments we will utilise, will depend on the prevailing situation, which will come off from time to time," Das added. "Depending on the situation, we will use the most appropriate instrument." End
Reported by Nishat Anjum
Edited by Deepshikha Bhardwaj and Maheswaran Parameswaran
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