The Hindu Business Line : Liquidity situation may ease soon: SBI chief

FIMMDA MEET: (From left) Dr Rakesh Mohan, Deputy Governor, RBI, and Mr A.K. Purwar, Chairman, SBI, at the inaugural of the FIMMDA-PDAI conference in Mumbai on Tuesday. - Shashi Ashiwal

Mumbai , March 14

Despite the measures announced by the Reserve Bank of India, the liquidity in the money market is still tight. But the situation is expected to ease by end of the current month, the Chairman of State Bank of India, Mr A.K. Purwar, said.

He said State Government expenditure is expected to increase by the end of the current fiscal, which would pump in more liquidity into the system.

Speaking at the annual conference of FIMMDA here today, Mr Purwar said barring international oil price, and other unforeseen circumstance, interest rates are expected to remain stable in the near future.

Dr Rakesh Mohan, RBI Deputy Governor, underlined the need to diversify the investor base in the Government securities. He said market participants should target entities such as public trusts, NGOs which are structured as trusts, pension funds and provident funds which are looking for safe assets for investments.

Although there are a large number of government securities, the actively traded are only four or five. He also stressed the need to improve the corporate bond market.

Later speaking to newspersons, Dr Mohan said the RBI has been buying illiquid securities in the current month. He said the increase in bond yields in recent months is in line with movements in debt markets globally.``The liquidity will return to the system as the effect of the IMD outflow wears off,'' Mohan told reporters

India's inflation has hovered between 3.33 percent and 5.96 percent in the current fiscal year. The Reserve Bank of India expects the rate to be between 5 percent and 5.5 percent by March 31.

The increase in bond yields in recent months is in line with movements in debt markets globally, Mohan said. India's benchmark 10-year yield has risen 40 basis points in the past six months, while U.S. treasury yields of the same maturity have gained 57 basis points and European bonds have increased 58 basis points, according to data compiled by Bloomberg.