Flexible approach in managing liquidity to help money market rates
RBI) will continue to adopt a flexible approach in managing liquidity to maintain an orderly evolution of money market rates that affect cost of borrowing across the economy, governor Shaktikanta Das said on Friday.
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«Looking ahead, the RBI will continue to be nimble and flexible in its liquidity management through main and fine-tuning operations in both repo and reverse repo,» Das said, detailing the decisions taken by the Monetary Policy Committee (MPC).
The RBI governor said that the central bank was well-equipped to handle the liquidity impact of the foreign investment flows that could hit Indian bond markets due to the inclusion of domestic debt in a JPMorgan index this month.
«The RBI has a number of instruments; we have managed it in the past, we will manage it this time also,» Das said.
Analysts expect foreign investment flows in the region of $20-40 billion due to inclusion in JPMorgan's bond index. The foreign flows may add to rupee liquidity into the banking system as the RBI is likely to absorb the dollars and rein in sharp appreciation in the domestic currency. Dollar purchases by the RBI from banks inject rupees into the system.
Das pointed out that the RBI had responded swiftly to swings in banking system liquidity over the past couple of months. While the RBI injected funds through variable rate repo
