Reddy-FM meet on liquidity today

Reserve Bank of India (RBI) Governor Y V Reddy is expected to meet Finance Minister P Chidambaram in New Delhi tomorrow to take stock of the liquidity scenario ahead of the Indian central bank's monetary and credit policy slated to be unveiled on April 18. The meeting takes place amid signs of a substantial improvement in liquidity conditions.

The liquidity conditions in the system appear to have improved with the RBI sucking out substantial amounts through the reverse repo window over the last two days.

The RBI absorbs liquidity through the reverse repo (repurchase) auctions at 5.50 per cent and injects liquidity through the repo window at 6.50 per cent.

RBI today absorbed a net of Rs 11,980 crore into the system through the reverse repo auctions, on top of a Rs 1,065 crore absorption yesterday.

The overnight call money rate also eased to around 5.5 per cent, the level at which the overnight money is traded in times of ample liquidity.

The yield on the 10-year benchmark bond also eased to 7.54 per cent from 7.56 per cent. The yields have fallen much sharply on the shorter end responding to the easing of liquidity concerns.

The RBI's purchase of foreign exchange inflows over nearly two months has also led to injection of liquidity into the system.

RBI has bought close to $7 billion of foreign exchange inflows, thus injecting almost over Rs 31,000 crore of liquidity into the system.