Need to go beyond 'band-aid' to address liquidity: Economists
RBI) will have to infuse more liquidity into the banking system through additional measures as the expected impact of the 50-basis-point cash reserve ratio (CRR) cut announced Friday will likely wane within a few months, economists said.
The central bank will likely use other liquidity instruments, like open market operations (purchases), foreign exchange swaps, and long-term variable rate repo auctions (VRR), they said.
The RBI in its policy statement on Friday said that it will continue to be 'nimble and proactive' in its liquidity management operations to ensure that money market interest rates evolve in an orderly manner. Speaking to the media soon after announcing the policy, Governor Shaktikanta Das declined to give more details on the likely liquidity operations by the RBI.
«I will not be able to spell out what actions we have on the table, it will all depend on how the liquidity situation evolves,» Das had said.
System liquidity is expected to be under pressure by March because banks would likely deploy this additional liquidity — caused by the CRR cut — to repay some of their non-deposit liabilities. Banks' liabilities to the rest of the banking system doubled to ₹5 lakh crore on October 23, to ₹2.5 lakh crore in 2019, according to Piramal Enterprises.
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