Liquidity deficit not yet down to RBI's comfort level, says Gokarn

The Reserve Bank Deputy Governor, Dr Subir Gokarn, said on Wednesday the CRR (cash reserve ratio) cut and OMOs (open market operations) have not got the liquidity deficit down to comfort levels and there can be more buyback of government bonds or OMOs by the central bank. Though the CRR cut and repeated OMOs have had the desired impact and eased pressure on liquidity, the deficit is yet to reach the RBI's comfort level, Dr Gokarn told newspersons here. “The combined impact of the CRR cut and the cumulative impact of OMOs is starting to bring the liquidity pressure down,” he said. Banks, which were borrowing up to Rs 1,50,000 crore from the overnight window, are now doing up to Rs 1,00,000 crore, which is above the RBI's stated comfort level of a deficit of around Rs 60,000-65,000 crore in the system, he said. On its strategy vis-à-vis liquidity injection, he said, “we have not put a stop on OMOs by any means, they are still on the table but they are and will remain as a response to liquidity conditions.” The RBI keeps an eye on the overnight borrowings and the call rates before doing OMOs, he said. Call rates, which are hovering about 0.25 per cent above the repo rate, have come down to “reasonable” levels, he said. To ease the liquidity pressures, the RBI has so far bought government bonds of over Rs 70,000 crore through OMOs and cut the CRR, or the percentage of deposits banks have to park with it, by 0.50 percentage points, which infused a further Rs 32,000 crore into the system.  When asked about the possibility of a further cut in CRR, Dr Gokarn said CRR cut is much wider in nature as it is guided by both liquidity and monetary policy aspects unlike OMOs which are directed at liquidity easing only. Dr Gokarn also dismissed the notion that OMOs are done with a view to managing the yields on securities, saying it is liquidity management alone which prompts an OMO.

HBL