rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » RBI expected to ease liquidity in the next policy review

RBI expected to ease liquidity in the next policy review

January 22, 2014 11:51 IST

RBI expected to ease liquidity in the next policy review

     Next

Next
Neelasri Barman in Mumbai

Experts feel the Reserve Bank of India could announce more steps to ease liquidity in the system in the third-quarter review of monetary policy next week.

These might include raising the limit on repo borrowing or term repo borrowing. It could also announce more purchase of government bonds.

The weighted average rate of call money was 8.22 per cent on Tuesday compared with 8.73 per cent on Monday.

The WAR on Collateralised Borrowing and Lending Obligation was 7.94 per cent on Tuesday, compared with 8.71 per cent on Monday.

Click NEXT to read further. . .


Image: Reserve Bank of India Governor Raghuram Rajan.
Photographs: Danish Siddiqui/Reuters

     Next

RBI expected to ease liquidity in the next policy review

Prev     Next
Prev

Next

Suyash Choudhary, head-fixed income, IDFC Mutual Fund, said: “The market is looking forward to more liquidity easing measures.

"If RBI is serious about re-anchoring overnight rates towards repo, I would expect more measures on liquidity. RBI can either increase the cap they have on overnight repo borrowing or term repo.

Alternatively, they can infuse more liquidity through open market operations. With these measures immediately after the monetary policy review, money market rates will fall.”

Click NEXT to read further. . .


Image: A worker cleans the stairs of the Reserve Bank of India building in Kolkata.
Photographs: Rupak De Chowdhuri/Reuters

Prev     Next

RBI expected to ease liquidity in the next policy review

Prev     Next
Prev

Next

ImageCurrently, banks can borrow 0.5 per cent of Net Demand and Time Liabilities from the repo window.

In mid-July, the cap was set at one per cent of banks’ NDTL. RBI has also been conducting term repos of seven-day and 14-day tenors.

These term repos were started in October, initially for 0.25 per cent of NDTL and then increased to 0.5 per cent.

Experts also believe RBI would be cautious in easing liquidity.

Dwijendra Srivastava, head of fixed income, Sundaram Mutual Fund, said: “The rupee is relatively stable and the US Fed’s tapering has begun.

"So, RBI might think of easing liquidity further but in a cautious manner.

"The repo borrowing might be increased further by 0.25 per cent and this would result in overnight rates falling by 10-20 basis points from current levels.”

Click NEXT to read further. . .


Image: An employee poses with the bundles of Indian rupee notes inside a bank in Agartala.
Photographs: Jayanta Dey/Reuters

Prev     Next

RBI expected to ease liquidity in the next policy review

Prev     More
Prev

More

Experts believe even rates of short-term instruments like commercial paper and certificates of deposit will fall if RBI cuts the repo rate.

“Inflation is coming down and the fear of rate hikes are disappearing.

RBI might either go for status quo on key policy rates or reduce the repo rate further.

The stance of RBI is not expected to be hawkish in the policy.

If there is a repo rate cut, then short-term rates might fall by about 25 basis points.

If status quo is maintained this time, then in the next policy, there might be a repo rate cut.

In that case, too, short-term rates are seen gradually falling from current levels,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.


Image: A customer counts currency inside a currency exchange shop in Kolkata.
Photographs: Rupak De Chowdhuri/Reuters

Prev     More
Source: