Such exercises are done by the central bank when the proceeds from sale of short-term securities are used to buy long-term government securities or bonds in a bid to bring down interest rates on long-term securities.
The Reserve Bank on Friday took steps towards normalisation of liquidity management to pre-pandemic levels, with the introduction of the standing deposit facility (SDF) as the basic tool to absorb excess liquidity, and narrowing the liquidity adjustment facility (LAF) to 0.50 per cent from the 0.90 per cent. Governor Shaktikanta Das said the SDF will be at 3.75 per cent, 0.25 per cent below the repo rate and 0.50 per cent lower than the marginal standing facility (MSF) which helps the banks with funds when required. The SDF has its origins in a 2018 amendment to the RBI Act and is an additional tool for absorbing liquidity without any collateral.
The thinking at the Centre is that since the RBI has ramped up purchases of government bonds, the interest earned on them will be transferred to the exchequer as dividend.
Bajaj Finance was the top gainer in the Sensex pack, rallying over 4 per cent, followed by SBI, Tech Mahindra, Asian Paints, Bajaj Finserv, IndusInd Bank, ICICI Bank and M&M.
House economists at the nation's largest lender State Bank of India (SBI) have urged the government to budget for nursing the pandemic-ravaged economy and not to focus too much on fiscal consolidation as there is a need for more stabilisation measures to sustain the fledgling recovery. And one of the best way to begin the new fiscal is to complete the share sale of LIC this fiscal. This can go a long way in repairing the overstretched balance sheet which in turn will bring down fiscal deficit to a much lower 6.3 per cent in FY23 as the public coffers will be left with a cash surplus of at least Rs 3 lakh crore to begin the new fiscal, SBI chief economist Soumya Kanti Ghosh said in a pre-Budget note on Wednesday.
Raghuram Rajan on February 2 left the key interest rate unchanged.
The street feels that RBI needs to intervene further, as liquidity is about to get strained.
CRR stand at 5.5 per cent after a 50 basis points cut in January.
Striking a different note from its peers, US brokerage Bank of America Securities has maintained that the Reserve Bank will leave rates unchanged next week, recognising growth-focused and capex-driven fiscal expansion, which though poses huge price pressure and interest rate risks later. The RBI's rate setting panel Monetary Policy Committee (MPC) will begin its deliberations next Monday and announce the policy moves on Wednesday (February 9) in the backdrop of a massive spike in bond yields post the Budget. Almost all major central banks are in the process of hiking rates to tame inflation.
The move by the central bank follows concerns over tight liquidity conditions and banks' unwillingness to lend to NBFCs.
Chances of a rate cut in April improve if core inflation continues to ease, growth falling below the projected 7.2% for FY19 and if the global trade slowdown exacerbates.
While there are several instruments in the RBI's disposal, the most effective one for infusing durable liquidity is bond purchase from the secondary market
The Reserve Bank of India (RBI) on Friday kept key repo rate unchanged at 4 per cent in view of rising inflation and faint signs of economic growth amid gradual lifting of coronavirus (COVID-19) lockdown. The central bank's newly-constituted monetary policy committee (MPC) began its three-day meeting on October 7 and maintained the stance as accommodative. It also kept the reverse repo rate unchanged at 3.35 per cent.
Amid fears of a third wave of coronavirus pandemic and hardening of retail inflation, the Reserve Bank is likely to maintain status quo on interest rate and watch the developing macroeconomic situation for some more time before taking any decisive action on monetary policy. The RBI is scheduled to announce its bi-monthly monetary policy review on August 6 at the end of the three-day meeting -- August 4-6 -- of the Monetary Policy Committee (MPC). The RBI Governor-headed six-member MPC decides on the key policy rates.
One incident should not be used to generalise the health of all cooperative banks, says RBI governor Shaktikanta Das.
As the central bank continues to increase forex reserves by running down the forward book which totalled $42 billion as of end-July, signalling its strong resolve to build a bigger reserve cushion to aid its expansionary, unorthodox monetary policy, the reserves are set to top the $655-billion-mark by March, according to a report. The forex kitty declined by $2.10 billion to $619.36 billion for the week to August 13 due to a fall in the core currency assets and gold, showed the latest RBI data. The reserves had risen to a lifetime high of $621.46 billion in the previous reporting week ending August 6.
The Reserve Bank of India on Friday decided to leave benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance as the economy faces heat of the second Covid wave.
'Increased allocations for MNREGA could have provided the much needed push to rural demand and consumption at a time when recovery continues to remain uneven.'
A dedicated jazz club is just what Kolkata needed to get things going. And Skinny Mo's has announced its arrival to the enthusiastic city.
FPIs, which are holding large exposures in Indian debt, could also be expected to book some capital gains as yields slide down
The central bank is the money manager of the government, and not a guarantor of any debt.
India's macroeconomic situation is improving fast and the country's GDP growth will turn positive in the third and fourth quarters of the current financial year, eminent economist Ashima Goyal said on Sunday. Goyal in an interview to PTI said the management of the COVID-19 pandemic and gradual unlocks announced by the government have helped in avoiding multiple COVID-19 peaks. The growth estimates by different agencies are being continuously revised, she said.
It believes that RBI will continue with liquidity infusion through CRR cuts and open market operations. Rate cut may happen only in January
The central bank can directly print money and finance the government, but it should avoid doing so unless there is absolutely no alternative, former RBI governor D Subbarao on Wednesday said while pointing out that India is 'nowhere' near such a scenario. In an interview with PTI, Subbarao suggested that to deal with the second wave of COVID-19 induced slowdown in the economy, the government can consider Covid bonds as an option to raise borrowing, not in addition to budgeted borrowing, but as a part of that.
The Reserve Bank on Friday announced that it will pump in Rs 12,000 crore (Rs 120 billion) in the market on June 12 by buying government securities to ease the liquidity situation.
The proposed Rs 10,000 crore (Rs 100 billion) of bond purchase would be done on Monday.
The central bank has, so far, cut its repo rate by 125 bps.
The balance sheet of the Reserve Bank plays a critical role in the functioning of the country's economy.
RBI policy surely cannot impact agflation, in any case.
Given the developments, analysts expect fiscal and monetary support from the government and RBI to revive sentiment. However, recovery, they say, from these levels will be slow and painful.
The volume in the anonymous trading platform, NDS-OM, was Rs 7,210 crore - less than half the normal volume, but not as bad as the start of the day indicated.
These cash shortages increase banks' funding costs, making it harder for them to lower lending rates
This is because the bond market has factored in the Rs 4.88-trillion gross borrowing for April-September 2020.
'Willing to spend is different from when to spend and how much to spend'
If banks have a surplus, they have the option of parking the money with the RBI.
'At this time, staying in the game is more important.' 'If we do that, then wealth can be generated.'
The main reason was that CPI inflation would likely remain below 4 per cent till July.
The rupee resumed higher at 61.13 per dollar as against yesterday's closing level of 61.40 at the Interbank Foreign Exchange and strengthened further to 60.90 per dollar before ending at 61.05 per dollar, a gain of 35 paise or 0.57 per cent.
The NSE Nifty too ended 58.60 points, or 0.54 per cent, higher at 10,967.30 after shuttling between 10,985.15 and 10,928 during the session.
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