RBI governor liquidity measure process to be gradual & non-disruptive

Mumbai, Oct 08 Reserve Bank of India Governor Shaktikanta Das on Friday indicated that on the process has to be gradual, calibrated and non-disruptive, while remaining supportive of the economic recovery.

It assumes significance in view of the ample liquidity in the system to the tune of Rs13-lakh crore. Also, the RBI Governor underscored that the apex bank will continue to absorb surplus liquidity via the 14-day variable rate reverse repo (VRRR) auction.

The Governor said, "As we approach the shore, we don't want to rock the boat. We want to go beyond the shore."

According to Das, "As the economy shows signs of emerging from the Covid-19 inflicted ravages, a near consensus view emerging among market participants and policy makers is that the liquidity conditions emanating from the exceptional measures instituted during the crisis would need to evolve in sync with the macroeconomic developments to preserve financial stability.

Commenting on RBI policy, Raj Kiran Rai, Union Bank MD & IBA chairman, said, "Today's policy is announced against the back drop of nascent signals of recovery of the domestic economy and mixed cues from the global economy. Hence, RBI's decision to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis is on the expected lines."

Considering the improvement in various high frequency indicators and the expected leg up in aggregate demand, impressive performance of exports and improvement in capex cycle, RBI has retained the projected GDP numbers at 9.5 per cent for the fiscal 2021-22. Q2 GDP numbers has been projected to go up to 7.9 per cent as against 7.3 per cent as

estimated in the August review, he added.

RBI governor made it clear that VVRRR should not be interpreted as a reversal of the accommodative policy stance.

"Let me reiterate and re-emphasise that the VRRR auctions are primarily a tool for rebalancing liquidity as part of our liquidity management operations and should not be interpreted as a reversal of the accommodative policy stance," he said.

In line with market expectations, the Monetary Policy Committee (MPC) has kept the repo and reverse repo rate unchanged and the policy stance remains accommodative. All high frequency indicators in Aug & Sept indicate the return of economic growth on the back of renewed consumption demand, capex by government, exports, a normal monsoon as well as manufacturing and services seeing a comeback.

The inflation trajectory moderated in Q2 and is projected to be around the 5% mark, within RBI's tolerance levels.

"Overall, the MPC is keeping a close eye on a sustained pick-up in growth, given slowing growth patterns in some of the other economies.

The policy had a "balanced and neutral" tone – with continued support for growth and a commitment to a gradual and calibrated change in policy based on emerging data and events," said Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank .

"The RBI will continue to support the market in ensuring an orderly completion of the borrowing programme of the government," Das said.

Das stressed that given the existing liquidity overhang, the absence of a need for additional borrowing for GST compensation and the expected expansion of liquidity in the system as government spending increases in line with budget estimates, the need for undertaking further G-SAP operations at this juncture does not arise.

"The Reserve Bank, however, would remain in readiness to undertake G-SAP as and when warranted by liquidity conditions and also continue to flexibly conduct other liquidity management operations including Operation Twist (OT) and regular open market operations (OMOs)," he added.