In the last month daily average LAF borrowing was Rs 94,477 crore. To ease liquidity, RBI in its third-quarter policy review had slashed cash reserve ratio (CRR) by 25 basis points to four per cent of banks’ net demand and time liabilities effective the fortnight beginning Saturday. Despite that, LAF borrowing continues to be high. CRR is the proportion of deposits a bank has to keep with RBI as cash.
But, the OMO may not give much comfort to the liquidity condition. “The deficit is Rs 1 lakh crore, so one OMO of Rs 10,000 crore may not be sufficient. I am expecting more OMOs till government starts spending,” said Ashutosh Khajuria, president (treasury), Federal Bank.
But this financial year, the pace of government spending is slow. Though the government has completed more than 90 per cent of its borrowing, but spending has not kept pace. Due to this, the liquidity deficit continues to be high.
The other factor is that RBI will also conduct auction of government bonds worth Rs 12,000 crore on Friday. Due to this the impact of OMO will not be felt.