Liquidity squeeze only frictional: Reddy

The Reserve Bank of India (RBI) Governor Y V Reddy today said the liquidity squeeze in the system is frictional and not because of any structural problem.

"We will take appropriate steps based on discussions with bankers and our own assessment of the situation," Reddy told reporters after Harvard University President Lawrence Summers delivered a lecture.

Chiefs of five commercial banks, including State Bank of India Chairman A K Purwar, ICICI Bank Managing Director & CEO K V Kamath and Citibank India Chief Sanjay Nayar, are scheduled to meet the RBI governor to discuss liquidity issues on March 28, as advised by Finance Minister P Chidambaram.

Reddy said as long as there are excess SLR (statutory liquidity ratio) securities held in the banking system, it is possible to manage the frictional liquidity.

There has been substantial unwinding of securities from the MSS (market stabilisation scheme) balances and the RBI has been injecting funds through the repo window under the LAF (liquidity adjustment facility).

He said, "We will meet bankers with an open mind next week."

On asset prices, Reddy said the January policy review made certain observations and there has been no significant change since then. "We will continue to make more analysis of the situation," he added.