DAS: LIQUIDITY OPS DIDN’T DILUTE RBI BALANCE SHEET

Roots for another ARC led by banks; calls for Centre-state action to stem rise in fuel prices

The Reserve Bank of India (RBI) did not compromise on its balance sheet while providing liquidity to the bond market through asset purchases, said Governor Shaktikanta Das. So far this fiscal year, the RBI has purchased over ~3 trillion of central and state government bonds from the secondary market to provide liquidity to the system.

The Reserve Bank of India (RBI) did not compromise on its balance sheet while providing liquidity to the bond market through asset purchases, Governor Shaktikanta Das said.

So far this fiscal year, the central bank has purchased over ~3 trillion of central and state government bonds from the secondary market to provide liquidity to the system.

Unlike many central banks, though, the RBI’S asset purchases “did not dilute its balance sheet and, hence, did not compromise on core principles of central banking”.

The purchases were risk-free government bonds only, he said.

“The focus was to foster congenial financing conditions without jeopardising financial stability,” Das said at the foundation day of the Bombay Chamber of Commerce.

The 10-year bond yields remained flat before and after the speech at 6.16 per cent.

The RBI governor, in the question and answer session after the address, said “a lot is going on internally” with regards to a central bank digital currency.

The RBI will come out with some broad guidelines and approach “very shortly”. “We don’t want to be left behind in this technological revolution that is taking place. We need to get two aspects right. One aspect is the technology part of blockchain, the benefits of which needs to be capitalised. The other aspect is central bank digital currency,” the governor said.

Das said high fuel prices “do have an impact on the cost side, and they act as a cost push factor across a range of activities”. “There are indirect taxes by the Centre and the states. And there is a need for coordinated action between the Centre and the states, and a coordinated and calibrated reduction of taxes,” the governor said.

The proposed ‘bad bank’ or ARC being floated by banks will “in no way jeopardise the activities of the existing ARCS”. “I think there is scope to have one more strong ARC formed by the banks,” the governor said.

The central bank is focused on the regulatory framework on ARCS, and will come up with an upgraded regulatory architecture for the ARCS, to ensure they have “skin in the game and they are very much in business”. Evergreening of loans has remained a focus area with the central bank and Indian banks are now in a much better shape, the governor said.

“RBI’S responsibility is to ensure that there is stability of the exchange rate, and our focus is always to prevent undue volatility, so that the exporters, or even importers and other businesses, can make informed decisions.”

Once excessive volatility is prevented, the concern of every sector — including micro, small and medium enterprises, which have emerged as the growth engine of the economy — would be addressed, he said.

MSMES HAVE EMERGED AS THE GROWTH ENGINE OF THE ECONOMY… ONCE EXCESSIVE VOLATILITY (ON EXCHANGE RATE) IS PREVENTED, THE CONCERN OF EVERY SECTOR, INCLUDING MSMES, WOULD BE ADDRESSED SHAKTIKANTA DAS

Governor, RBI