Liquidity not reaching pockets where it is most needed: Experts

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With the markets significantly down, the already slowing economy further getting impacted by the coronavirus scare, what is it that the country's central bank and central government can do to help better the situation and more importantly what steps need to be taken to tackle the finance dislocation that is underway in the debt markets is the big question.

To discuss this in detail and get answers to few of the questions, CNBC-TV18 spoke with Ananth Narayan, professor at SPJIMR; market expert V Srinivasan and Neeraj Gambhir, president and head-treasury at Axis Bank.

Gambhir said the market has been asking for a rate cut for a while. The expectations have been built-up. The MPC did not deliver it the last time and there was a disappointment around this.

"We do need at least a 50 basis points cut, if not more. This is just to calm the nerves in the market and say that this was expected, this is delivered and the RBI is watching and acting as required," he added.

“The open market operation of Rs 10,000 crore is quite small. We need a commitment to do more open market operations over the period of next 5-7 weeks as this problem persists and a commitment to say that if required we will do more,” said Gambhir, adding that we don’t need liquidity from central bank because there is plenty of liquidity around.

“Therefore, these open market operations is not to take care of the liquidity aspect of the system. The open market operations are to provide a bid in the market as far as the government bond market is concerned, to make sure that the rates do not fly at this point in time and give the confidence to the market,” he further added.

Srinivasan said liquidity is not reaching the pockets where it is most needed. “So you need to address pockets which need liquidity right now and try and provide direct assistance and not provide system liquidity because when you are providing liquidity to the system, the system liquidity is abundant but it is not flowing through the pipe to people who need it,” he added.

Speaking about rate cut and liquidity measures, Narayan said, “Rate cuts cannot revive the economy and cannot bring demand at this point in time. The point is that we are not trying to address the economy. Of course, the economy requires other steps, largely fiscal to take care at this point in time.”

Source: CNBC-TV18