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May 16, 2007 19:17 IST
Large capital flows and increased tax payments by corporates in the last five six months has made liquidity management difficult, Reserve Bank Deputy Governor Rakesh Mohan said on Wednesday.
Capital flows inject liquidity in the system while robust corporate performance is leading to bunching up of tax payments. A lot of liquidity is being sucked out at the end of every quarter, he said in Mumbai.
"Overall liquidity management is difficult but we have to deal with it," Mohan said at the First French-Indian Financial Forum organised by industry chambers Federation of Indian Chambers of Commerce and Industry.
On forex management, the RBI deputy governor said despite 'active intervention' of the apex bank, the rupee exchange rate remains market determined.
"Even though the RBI does intervene actively in the currency market, if you look at the volume of intervention it is really very small compared to the overall turnover in the forex market."
"We have had a view that we would have a stable, well functioning forex market while curbing volatility in the market," Mohan said.
Referring to the legislation empowering RBI to reduce the statutory liquidity ratio for banks, Mohan said the apex bank will decide keeping in mind the macro economic conditions.
"The recent change in legislation has also enabled the RBI to reduce this ratio, but depending on macroeconomic and monetary conditions," he said.
A SLR cut could enable banks to sell bond holdings and free up more cash for lending.
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