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Liquidity is and will remain comfortable: RBI

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RBI in total issued Rs 1 lakh cr of special bonds, sold another Rs 90,000 cr of regular bonds directly to secondary market

Anup Roy  |  Mumbai  Last Updated at December 7, 2017 00:59 IST


Strongly rebutting the market interpretation that RBI’s secondary market bond sales have reduced in the system, and could be the primary cause for short-term spikes in rates, RBI Governor said drying up was not the correct definition, as the “weighted average call rate continues to be below the policy repo rate. So, to me it is not at all clear (criticism on liquidity), and we are still undertaking a fair bit of reverse repo operations”.


The RBI injects money through repo operations, and sucks out through reverse-repo. Both legs have overnight and longer maturity period versions. 


State Bank of India (SBI) recently raised its bulk deposit rates by 100 basis points, as reduced in the lender. But, the RBI governor said it was “more of a qualitative assessment, rather than quantitative” as bulk deposit rates remained very low for a long time. 


RBI Deputy Governor explained the RBI’s stance at some length. “I think perhaps the market is adjusting to the fact that we have been in remarkably surplus conditions for a while but I think we are nowhere close to having reached neutrality,” he said in the post-policy conference.


The regulator’s neutral stance would mean on some day banks would borrow from the RBI, while parking excess money on other days. 


Acharya said RBI was “essentially absorbing to the tune of” Rs 20,000-80,000 crore on a “pretty persistent basis”.


The deputy governor also clarified that while buying portfolio flow dollars from the markets, the had injected over Rs 1 lakh crore of rupee on top of the demonetisation-induced money. That required sterilisation through issuance of special securities but the RBI did that with a lag “because we were waiting for the conditions post-demonetisation to normalise, and see whether currency in circulation stabilises”.


The RBI has issued Rs 1 lakh crore of special bonds and sold another Rs 90,000 crore of regular bonds directly to the secondary market to neutralise the swollen condition, which would have fanned if kept for long. In March, banks were parking close to Rs 6 lakh crore of excess with the  


Acharya said the RBI would continue to manage the evolving conditions through a mix of variable rate repo and reverse repo of various maturities, to meet short-term fluctuation. 


To meet longer-tenure needs, it will also consider open market operations, secondary market bond purchase or sale “in case the is required to be injected or absorbed on a durable basis”. 
conditions would be marginally surplus till the end of this financial year but should reach neutrality in the first half of 2018, Acharya said.  


Yields on the 10-year bond closed at 7.031 per cent from its previous close of 7.061 per cent after the assurance.

First Published: Thu, December 07 2017. 00:59 IST

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