Financial Chronicle - - MONETARY - AN­JANA DAS

Afresh storm may be brew­ing ahead of the De­cem­ber 14 RBI board meet­ing with the cen­tral bank sud­denly say­ing CRR cut is not un­der the am­bit of mon­e­tary pol­icy com­mit­tee (MPC) and it does not see the need to use the cash re­serve ra­tio as a tool for liq­uid­ity man­age­ment, a stand and state­ment that may not go down well with North Block man­darins.

The MPC panel, as the RBI sees, has the man­date look into rate of in­ter­est and in­fla­tion man­age­ment. A source said the RBI might have been wary of giv­ing a sig­nal that it is chang­ing its mon­e­tary stance through a CRR cut. The cen­tral bank is rather us­ing in­stru­ments that will give in­dus­try and banks short-term con­trol over liq­uid­ity with­out in any way com­pro­mis­ing on the mon­e­tary stance.

Though dis­ap­pointed with the CRR cut not hap­pen­ing, the fi­nance min­istry has not of­fi­cially re­acted to the RBI gov­er­nor’s state­ment that ‘CRR is not in the am­bit of the MPC. Don’t see the need to use the CRR as a tool for liq­uid­ity man­age­ment. The man­darins, how­ever, feels this was a way to avoid pro­vid­ing banks more liq­uid­ity through a tool that was in­di­rectly favoured by the gov­ern­ment. In a late night lim­ited re­sponse to the MPC pol­icy de­ci­sion, Sub­hash Chan­dra Garg, sec­re­tary, depart­ment of eco­nomic af­fairs, just said in a state­ment, "The as­sess­ment of MPC for growth and in­fla­tion out­look is con­sis­tent with that of gov­ern­ment as­sess­ment.”

A sec­tion of the mar­ket was lob­by­ing for a cut in CRR.

While Garg did not com­ment on the RBI's prom­ise to in­crease open mar­ket op­er­a­tion (OMO) pur­chases and statu­tory liq­uid­ity ra­tio (SLR) cut as pos­si­ble way to in­crease liq­uid­ity, he said, "The gov­ern­ment notes RBI's de­ci­sion to main­tain the pol­icy rates. The pol­icy stance prob­a­bly re­quired calibration."

On the RBI re­duc­ing SLR to 18 per cent from the cur­rent 19.5 per cent over six in­stall­ments from Jan­uary 2019, Garg said, "While this will have some im­pli­ca­tion for gov­ern­ment se­cu­ri­ties, the re­duc­tion in oil prices and rev­er­sal of for­eign flows has re­sulted in fur­ther mod­er­a­tion of yields."

A one per­cent­age cut in CRR, which is the por­tion of de­posits main­tained by banks with the RBI, from the cur­rent level of four per cent would have re­leased around Rs 1.2 lakh crore into the bank­ing sys­tem. A CRR cut would have a much quicker im­pact on lend­ing rates. The RBI has opted for to con­tinue to use open mar­ket op­er­a­tions (OMO) and longer ten­ure term re­pos to cal­i­brate over­all liq­uid­ity.

The RBI board, in its Novem­ber 19 meet­ing, did not con­sider any pro­posal to boost liq­uid­ity for the non­bank­ing fi­nan­cial com­pa­nies (NBFC) sec­tor de­spite a strong pitch by the gov­ern­ment nom­i­nees.

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