Liquidity stable in market, says Mohan

The Reserve Bank of India (RBI) deputy governor Rakesh Mohan on Thursday said that liquidity was stable in the money market and there were enough instruments with the central bank to take care of any liquidity need.

"Liquidity is stable. One doesn't see any problem and there are enough instruments both under the market stabilisation scheme and liquidity adjustment facility to take care of liquidity requirements," Mohan told reporters on the sidelines of a seminar on regional cooperation.

Liquidity in the system has declined sharply in the last couple of days. Since Wednesday, the central bank has been injecting liquidity into the system through repo. The apex bank injected Rs 5,175 crore into the system through 6.25 per cent repo on Thursday.

Mohan reiterated that the recent movements in the forex market were very orderly and the two-way movement in the Indian currency was determined purely by demand and supply conditions.

"The rupee movement is market-determined. We intervene only when movement in the forex market is disorderly," he said. As of today, the rupee was overvalued 7.10 per cent as per JP Morgan's five country trade weighted real effective exchange rate.

Defending the 25-basis point repo rate hike in the mid-term review of the annual policy, he said had there been no monetary policy action, the RBI would not have been able to keep the year-end inflation target at 5.0-5.5 per cent.

There had been pressure on inflation in recent weeks, Mohan said.

He however added, "In India, and in some other countries, we don't see pass-through (of high oil prices) as of now in prices of consumer goods."

Most central banks and analysts now expect oil prices to remain high longer than expected, Mohan said. "Current high oil prices are seen with more permanent feature."