Herculean task

My View on  "RBI will act on data surprises that are durable: R...": 

The observation “Banks’ compulsory bond holding now is 23% but they hold close to 29% and up to 24.5% holding, they do not need to trade.” and Dr Rajan’s response which read:

“We will look at both those issues. To the extent that the new government can provide an assurance that the fiscal situation is under control, we can move to bring SLR down, purely as a way of reducing distortions in the system. We can’t bring it down so far that we hit liquidity coverage ratio limits, but we will bring it down to the extent we need, consistently and prudentially. It is good for the economy if there is a credible, sensible fiscal consolidation path the new government lays out.” are loaded with much deeper apprehensions about the fiscal policy management. Both the temptation for banks to park more funds in SLR securities and the likely chaos that may emerge in ensuring ‘buyers’ for government securities if banks unload their holdings are issues to be tackled. Creating a real time market for such securities, which is a pre-requisite even for the Government’s pet project of transfering Public Debt Management from RBI to GOI, will call for confidence building of a much higher level, which for the present looks a herculean task.

- M G Warrier, Thiruvananthapuram