Worried over liquidity crunch in the economy estimated at around Rs 50,000 crore, the RBI today said the situation has worsened and it was taking measures to ease it.
"...During the last couple of weeks the number (deficit) has been clearly above that. That number was clearly about Rs 50,000 crore," RBI Deputy Governor Subir Gokarn said.
The RBI's policy statement on November 2 had tried to explain a comfortable liquidity band, which is plus or minus one per cent of the net demand and time liabilities (NDTL), Gokarn said.
The economy has been experiencing liquidity shortfall due to a spurt in festive demand coupled with an over Rs 20,000 crore absorption on account of the recent share sale offer of public sector undertaking Coal India and Power Grid Corporation (PGCIL).
"We moved to a deficit liquidity situation in end May or early June. But in the last few weeks it has gone beyond what we think is a normal or a positive liquidity deficit," Gokarn said in his address at a CII event here.
Stating that some deficit in liquidity is desirable, the RBI official, however, observed that in the last few weeks the liquidity situation has gone beyond the comfort zone.
To ease the pressure on liquidity, the RBI earlier this week announced special measures.
Under this banks would be able to avail more funds under the liquidity adjustment facility (LAF) for up to one per cent more on their deposits.
Gokarn pointed out that since the past few weeks, RBI has been taking measures to infuse liquidity into the system.
"During the past few weeks, we have relaxed the statutory liquidity ratio limits, did some open market operations and restructured the buyback and auctions of government bonds, to handle short-term liquidity problems, he said"
Liquidity deficit is desirable from the monetary policy transmission point of view, he said, adding the economy had earlier moved into a surplus liquidity mode.
This had been after the injection of money in the post-slowdown monetary measures adopted by the central bank and fiscal steps initiated by the government.
"An excessive liquidity deficit tends to bring about volatility in the short-term rates...That makes for some possible disruption for banking activities and credit flows," the RBI Deputy Governor said.
Bankers have also been saying that liquidity has been tight in the system but this is the first time a senior central bank official has flagged it as an issue of concern. For the past few weeks, the call money rates have been ruling at historic highs.
Gokarn, however, said, "the process of policy normalisation" is almost complete. There will not be further hikes in key rates in the immediate future, and "growth and inflation" will be the main factors while RBI firms up its responses.
It may be recalled that though food inflation has been on a southward spiral for the past one month, it is still at an elevated level of 12.30 per cent for the week ended October 30.
On inflation, Gokarn said it is still a mixed bag as food inflation has been waning.