RBI to conduct two-way fine-tuning liquidity operations depending on evolving conditions, Governor Das says

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The Reserve Bank of India (RBI) will conduct two-way fine-tuning liquidity operations depending on evolving financial conditions, the governor of the central bank said on August 5.

“Going forward, the RBI will remain vigilant on the liquidity front and conduct two-way fine-tuning operations as and when warranted,” the RBI Governor Shaktikanta Das said during the bi-monthly Monetary Policy announcement.

These will be mainly variable rate repo and reverse repo operations depending on the evolving liquidity position, he added.

The central bank infuses liquidity in the system through repo operations and sucks it out by conducting reverse repo operations.

Das said that due to the steps undertaken by central bank, surplus liquidity in the banking system has come down from Rs 6.7 lakh crore in April-May to Rs 3.8 lakh crore in June-July. This was largely due to the variable rate reverse repo operations and Standing Deposit Facility, he said.

The RBI, which is looking to scale back pandemic-era surplus, has ensured that liquidity will continue to be in surplus at least this year. Although RBI will continue to suck out liquidity surplus, the process is unlikely to be hurried, said bankers.