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The liquidity situation should get less uncomfortable in a few months from now, according to RBI Governor D. Subbarao.
The RBI will consider all the options available with it to tackle tight liquidity conditions, including adjusting banks’ cash reserve ratio (CRR) or any other mechanism, and not just limit itself to bond purchases by conducting open market operations (OMO).
“The assumption that OMO will be the preferred tool is wrong, don’t go with that assumption,” Subbarao said at a post-policy conference call with analysts.
The RBI, in its annual monetary policy review, on Friday reduced repo rate by 25 basis points to 7.25 per cent, while keeping the CRR unchanged at four per cent, its historical low.
Repo rate is the rate at which RBI lends short-term funds to banks. CRR is the slice of bank deposits parked with the RBI.
The RBI has announced OMOs worth Rs 10,000 crore in order to adjust the liquidity tightness in the system.
Expectations of sustained OMOs rose after Subbarao said on Friday, “If liquidity is a problem, I think OMOs are as good as CRR, if not better.”
The banks’ daily repo borrowings under the liquidity adjustment facility on Monday stood at about Rs 97,600 crore.
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