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Deputy governor Viral Acharya said on Wednesday liquidity conditions have continued to normalise gradually during the year.
Addressing a press conference here post the monetary policy announcement, Acharya said the overhang of liquidity surplus in the system after the note-ban last November, which had touched a peak of close to Rs 7.96 lakh crore at the beginning of the year, has since come down.
Banking system liquidity has been moving towards neutrality as the currency in circulation has expanded by Rs 7.6 trillion during January 6 to November 24, 2017. “It is expected that the liquidity condition would be marginally still in surplus by March 2018. Given the trends in currency in circulation, it is expected that liquidity may reach neutrality in the first half of 2018,” Acharya said.
Acharya said the RBI will continue to manage the evolving liquidity conditions through a mix of variable rate repo and reverse repo operations of various maturities, for handling short-term fluctuations. “We will consider open market operations in case the liquidity is required to be injected or absorbed on a durable basis,” he said.
Also read:Why the RBI focusses on liquidity management
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