The Reserve Bank of India (RBI) on Friday said it was watching the liquidity situation closely, and would act when required.
RBI deputy governor H R Khan said as far as infusing liquidity was concerned, all options for the central bank were open. Asked whether RBI would conduct more open market operations (OMOs), he said, “OMOs are not ruled out.” Banks have been borrowing more than Rs 1.7 lakh crore since Monday.
RBI on Friday infused close to Rs 11,000 crore through a government bond purchase under OMO auctions. Markets are expecting additional RBI support, either through a cut in the cash reserve ratio (CRR) or more OMOs, as liquidity is expected to worsen as the deadline to make advance tax payments draws close. Market participants also expect temporary relief of up to 100 basis points in the statutory liquidity ratio (SLR) requirement. Currently, SLR is 24 per cent of net demand and time liabilities.
Khan refused to comment on a CRR cut. “RBI is watching the situation closely....Steps will be taken when needed.
“Further liberalisation (of foreign investment by companies) can perhaps wait till the current account situation improves,” he said, adding that foreign fund inflows were not commensurate with outflows.
The current account gap this financial year is projected to widen to 3.6 per cent of gross domestic product, compared with 2.7 per cent a year earlier, according to estimates released by the Prime Minister’s Economic Advisory Council. On outward foreign direct investments, Khan said guarantees had risen, and this posed a risk for companies and banks. He added that the guarantees may be invoked in the event of a downturn abroad.
