Also read: RBI says will deploy all options to tackle cash crunch
We have actively managed liquidity conditions... Liquidity situation should be less uncomfortable going forward. "We have also indicated that we will actively manage liquidity. Consistent with that policy, we have announced an OMO (open market operation) of Rs 10,000 crore on Friday," Subbarao told analysts in a customary post-policy conference call.
He also said as and when the difference between deposit and credit growth rates lessens, the tight liquidity condition will further ease. Currently, banks are borrowing close to Rs 90,000 crore from RBI through the overnight window, which is above the central bank's comfortable level of 1 per cent of NDTL at Rs 60,000 crore.
As per reports, the government's cash balance is close to Rs 1 trillion, which can significantly ease liquidity situation as the government starts spending. However, Subbarao also said the RBI prefers liquidity to be in deficit mode given the upside risks to inflation. Answering to a question on rising housing prices, he said, "there is no housing price bubble building up in the country." Referring to monetary policy transmission, Subbarao said the RBI expects base rates of banks to come down in the coming months adding as yields on government securities come down, money will be cheaper to that extent for corporates.
On the high current account deficit (CAD) level, Subbarao said CAD of 2.5 per cent of GDP is sustainable and the present level of 6.7 per cent in third quarter of last fiscal is way above the limit. He added that RBI wanted low CAD funded by stable non-debt flows (like FDI).
In the last policy review, RBI had reduced repo rate by 0.25 per cent with no change in cash reserve ratio (CRR) with flagging up concerns on high CAD and upside risks to inflation. Meanwhile, on allegation of money-laundering by banks, Deputy Governor K C Chakrabarty, who is in charge of banking operations, said that RBI's probe into the allegations has not found any irregularities at these branches.
However, he added that the regulator is working on strengthening the KYC (know your customer) norms.
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