RBI charts plan to cut surplus liquidity by over Rs 5L cr by Dec
This could be as good as it gets for borrowers, as the withdrawal of cash will put pressure on bond yields, which could eventually trickle down to lending as well.
Announcing the roadmap for liquidity normalization, Governor Shaktikanta Das said excess liquidity currently averaged Rs 9.5 lakh crore in October and potential excess liquidity stood at over Rs 13 lakh crore. The RBI plans to reduce excess liquidity so that its borrowing from banks under the reverse repurchase transaction will return to Rs 2-3 lakh crore by December 2021. It is currently around Rs 8, 8 lakh crore. “We don’t want suddenness. We don’t want surprises. We don’t want to tip the boat, especially since we have to reach the shore, which is now visible and there is a trip beyond the shore, ”Das said in his post-political speech, explaining the reason not to reduce liquidity. .
He said RBI would work towards its inflation target of 4% moving forward in a calibrated manner and without creating disruption.
Das reiterated his concerns about the inflationary impact of high indirect taxes on fuel and said it was up to the government to make a decision on the matter. “The gradual and calibrated unwinding of liquidity measures will support growth, while containing inflation,” said CH SS Mallikarjuna Rao, Managing Director and CEO of PNB.
The Monetary Policy Committee voted 5: 1 to maintain the status quo on the repo rate at 4%. RBI also decided to keep the repo rate at 3.35%. Economists saw the governor being cautious about growth from his policy statements, although all growth targets were withheld. “We are looking at signs of growth to take hold and show signs of sustainability. We are closely monitoring the changing dynamics, ”said Das.
For the current fiscal year, RBI on Friday maintained its real GDP growth projection at 9.5%. The RBI, however, lowered its forecast for FY22 retail sales inflation to 5.3% from 5.7%, saying the path for inflation has turned out to be more favorable than expected. He reassured the markets that liquidity will be available for growth and that absorption will be through reverse repurchase agreements where participation is voluntary. He said, however, that there was no longer a need for a government securities acquisition program (G-SAP) through which RBI bought bonds. During the current fiscal year, RBI injected Rs 2.4 lakh crore through bond buybacks including G-SAP.