Last Updated : Dec 05, 2018 05:04 PM IST | Source:

Liquidity situation comfortable, but will step in as lender of last resort if necessary: RBI

The central bank's Monetary Policy Committee (MPC) held the repo rate at 6.5 percent.

Moneycontrol News @moneycontrolcom

There is more than enough liquidity in the system at the moment, but the Reserve Bank of India will step in as a lender of last resort if necessary, Deputy Governor Viral Acharya said on December 5.

The central banker pointed out that over the last couple of months, the weighted average call rate has been consistently trading below the benchmark repo rate, which is a sign of the market being flush with liquidity.

The government and the RBI have been at loggerheads over the issue of liquidity available to small enterprises. Acharya's speech in late October was seen as a flash point in the tiff between the two parties.

Acharya said the RBI had increased its pace of open market operations (OMOs) over the past three months in order to offset the impact of a short-term liquidity crunch that gripped the market during the festive season and when the central bank had to step in to stem the fall in the rupee.

He also said that increased OMO purchases would be needed till March 2019 to keep the liquidity situation in check.

Through OMOs, the RBI injected Rs 360 billion in October and Rs 500 billion in November, which brought total durable liquidity injection to Rs 1.36 trillion for 2018-19.

"Liquidity injected under the LAF, on an average daily net basis, was Rs 560 billion in October, Rs 806 billion in November and Rs 105 billion in December (up to December 4)," the central bank said.

Acharya said the government has been watching market developments related to the liquidity situation, and has been in touch with market regulator Securities and Exchange Board of India (SEBI) on the subject.

The central bank's Monetary Policy Committee (MPC) today kept the benchmark repo rate unchanged at 6.50 percent.

The RBI eased liquidity norms after defaults on payments by Infrastructure Leasing and Financial Services (IL&FS) triggered fears of a liquidity crisis in non banking financial companies (NBFCs).

The MPC's statement highlighted the measures taken by the RBI to inject liquidity in the market.


The MPC also said that liquidity needs arising out of growth in currency and RBI's foreign exchange operations were met through a mixture of tools.

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First Published on Dec 5, 2018 04:27 pm
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