Liquidity comfortable, will have more open market operations if needed: Gokarn
The government and RBI have agreed on rate cuts to stimulate growth. Or have they?
Liquidity condition is quite comfortable as of now and the central bank is open to conduct more open market operations (OMOs) or reduce the cash reserve requirements (CRR) further in the case of a liquidity shortage in the future, it said today.
"The daily (borrowing) through liquid adjustment facility (LAF) corridor is now between Rs 70,000-90,000 crore and our comfort level is around Rs 65,000 crore. So, this is not a very stressful situation as the gap is now relatively narrow," deputy governor Subir Gokarn said at post-policy media meet.
Gokarn, who is in-charge of the monetary policy department, also said RBI is open to conduct more OMOs or reduce CRR in case of a strain in liquidity.
Borrowing by banks from the LAF window has fallen to Rs 70,000-90,000 crore a day during the past week, from a high of around Rs 1.9 trillion last month.
Gokarn, however, said the factors like government's bond redemptions and borrowings would determine the overall liquidity in the near future.
Yesterday, the RBI, in its Macroeconomic and Monetary Development Report, had said liquidity condition was likely to ease in the first quarter of this financial year as a response to the recent cuts in the CRR, along with OMOs.
"The secondary impact of durable liquidity injections by way of CRR cuts and OMO purchases is expected to considerably ease liquidity conditions in Q1 of FY13.." the RBI said.
While the RBI had slashed CRR by 125 basis points (1.25 percent) between January and March, it had conducted Rs 1.3 trillion worth of OMOs in between last November and March to deal with tight liquidity condition.
Gokarn also said it is difficult to take a view for the whole financial year. "Projecting liquidity beyond few weeks is hazardous. We do it for a four-week horizon. It is a very short term exercise," he said.
Gokarn also said there is no preference between OMOs and CRR cuts and it all depends on effectiveness of the instrument to meet a specific situation.