On a daily basis banks are borrowing nearly Rs 1.9 trillion from the RBI for an overnight period. There is ultra short-term liquidity crunch but longer term rates are falling, for want of demand for loans.
The tools to tackle such a short-term liquidity deficit as per Ashima Goyal from IGIDR and A Prasanna, Chief Economist at ICICI Securities Primary Dealership are a CRR cut and conduct more OMOs to swap foreign securities for domestic on their balance sheet. They also feel that a cut in CRR is not going to lead to excess liquidity or a rise in aggregate demand overnight. It will take several quarters to get the desired result. Below is the edited transcript of the interview. Also watch the accompanying video. Q: Your analyses as to why this liquidity deficit is getting to be so persistent despite regular OMOs by the RBI as well as one hefty CRR cut? Prasanna: One has to see the OMOs which RBI has done as far as the CRR cut in the context of how much of liquidity has gone away from the system. There are two ways in which liquidity has gone away from the system in the current financial year. One is through currency withdrawal by the public which happens almost every year. My estimate is around 1 lakh crore has gone through this route. The other route of course is RBIDiscover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
