RBI may continue with its liquidity surplus in the next monetary policy reviewThe Reserve Bank of India (RBI) is likely toretainasurplusof liquidity in the banking system andannounceanother round of bond purchases, but will avoid adding incrementalcashin the near future, twosourcessaid on Friday.Funds parked with the Reserve Bank ofIndia(RBI), in its reserve repo window, have averaged about Rs 7,00,000 crore, while the government's cashbalances with the central bank are about Rs 3,40,000 crore.This fiscal year, the RBI has bought bonds worth Rs 2,05,000 croreinauctions forming part of its government securities acquisitions programme (GSAP)."All our objectives withsurplusliquidity are not yet met," said a senior government source directly aware of the matter."For example, credit growth is not at desirable levels and this needs to increase, for whichsurplusliquidity is something we need," added the source, who asked not to be identified as he was not authorised to speak to media."Also the United States tapering could be bit more aggressive then we had expected so we want to ensure our market liquidity remains insurplus."A banking source said the RBI was in no hurry to withdraw the existingsurplus, and would probably unveil anotherGSAPround at a monetary policy review on Oct.
8."The RBI does not want to add to thesurplusliquidity, at least, not immediately, but they willannounceaGSAP3.0, or possibly a calendar which could include simultaneous buying and sale of bonds that is liquidity neutral," said the source, who sought anonymity as the matter is a sensitive one.The RBI did not immediately respond to a request for comment.The government source added, "I expect RBI to keep liquidity neutral or positive, compared to current levels.
SoGSAP3.0 should beannounced.
This is the time to push economic growth.
We cannot sap liquidity from the market."Most market participants expect the RBI toannouncemore bond purchases to help absorb the government's programme of borrowing to the tune of Rs 1,206,000 crore."The RBImaynot want to add to it any more, but we don't think they are going to undertake measures to permanently withdraw liquidity," said Suyash Choudhary, head of fixed income at IDFC Asset Management."We think the variable rate reverse repo program continues to get expanded: over time instruments of longer than 14 daysmaybe introduced as well."This week the United States Federal Reserve said it was likely to begin reducing monthly bond purchases as soon as November and signalled interest rate hikes could follow sooner than expected, as its turn away from pandemic crisis policies gains momentum.