Liquidity position comfortable, RBI says ahead of policy review

Reserve Bank today said the liquidity situation currently is comfortable and indicated that monetary policy action in the forthcoming mid-quarterly review next week would depend on latest developments in the money market.

"For the last several weeks..., liquidity levels have been within our comfort zone... (but) we monitor this on a daily basis", Reserve Bank Deputy Governor Subir Gokarn told reporters on the sidelines of a function here.

RBI, he added, would take note of emergence of "signs of stress, particularly if they are likely to be persistent. We will take that into account...we have for quite some time realised there was stress in the market both in terms of quantity of LAF (Liquidity Adjustment Facility) borrowings and in terms of the behaviour of the call rate which is the number we look at. There are no signs of stress at the moment".

The central bank, in its mid-quarterly review of monetary policy to be announced on September 17, is expected to take steps to promote growth and also contain inflationary expectations. The RBI is also expected to respond to some bankers' demand for abolition of Cash Reserve Ratio (CRR), the amount of money which banks are required to keep with the central bank in cash.

Answering questions on inflation and its impact on the forthcoming policy review, Gokarn said: "I don't have expectations. I don't cite expectations. We will look at the data when it comes".

The government is likely to come up with the August inflation data on September 14. The wholesale price based-inflation in July slipped to 6.87 per cent from 7.25 per cent in the previous month.

The Reserve Bank has been taking Open Market Operations (OMO) to pump in liquidity into the market by buying government bonds. The OMO, which is easy to implement, only has short term implications on the liquidity situation.

... contd.

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