Liq­uid­ity Mea­sures to Usher in Softer Rates

The Economic Times - - Economy -

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


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