Liquidity Measures to Usher in Softer Rates
Mumbai: Reserve Bank of India’s shift in liquidity management policy will ensure that future rate actions by the central bank has immediate effect and reduce the cost of mistakes for banks, which could not pass on RBI’s rate cut benefits adequately due to cash crunch in the system.
The central bank has assured sufficient liquidity with banks so that transmission of rate cut happenseasily.“Thepastrationale for keeping the system in significant average liquidity deficit no longer is as compelling, especially when the policy stance is intended to be accommodative,” RBI gover nor Raghuram Rajan said in the policy statement.
The central bank has clearly recognised the need to manage cash shortage in the system in two ways: short term and permanent or durable liquidity.
“RBI’s change in stance on liquidity is the biggest take-away for me from this policy,”said MS Gopikrishnan,headof FX,rates and credit trading at Standard Chartered Bank. “Just ensuring liquidity stays at neutral is