RBI achieves neutral banking system
The Dollar Business Bureau
The Reserve Bank of India effectively achieved the ‘neutral’ banking system from cash-crunch zone faced 3-4 months back.
The neutral system will help the customers to gain quick benefits from RBI’s rate cuts.
On the account of Rs 80,000 crore Open Market Operation, purchases in last three months and decline in cash circulation in June, the central bank achieved the desirable neutral liquidity in 1st quarter, said India Ratings Research.
OMO mechanism helps the RBI to infuse or draw out the cash from the banking system. The cash crunch in Feb-March period was as high as Rs 1.4 lakh crore. According to RBI reports, by June cash surplus was seen in range of of Rs 19,700- 31,700 crore
The report stated that with the overnight inflation rate hovering close to the lower bound of the liquidity adjustment facility corridor, money market rates remained on safer side.
In bi-monthly policy of April, RBI decided to gradually decrease the average ex-ante liquidity deficit to a spot closer to liquidity.
By using asset purchases and sales as needed, the RBI assured of smooth supply of liquidity over the year. RBI aims to bridge the policy rate gap to 50 bps from previous 100 bps.
The policy rate on which RBI lends short term funds to banks is now 6.50% as against 6% reverse repo on which RBI borrows from banks.
In near future, liquidity requirements will depend upon growth in currency-in-circulation and incremental foreign portfolio.
to success.