Will Ensure Adequate Liquidity to Support Economic Recovery: RBI Governor

In a virtual address post the monetary policy meet, he said that the RBI will continue to support the market.

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RBI Governor Shaktikanta Das on Friday said that adequate liquidity will be ensured to support the process of economic recovery.

In a virtual address post the monetary policy meet, he said that the RBI will continue to support the market in ensuring an orderly completion of the borrowing programme of the government.

"Our focus on orderly evolution of the yield curve as a public good also continues."
RBI Governor Shaktikanta Das

'Market Appetite for VRRRs Has Been Enthusiastic'

The statement assumes significance as Das said that RBI may consider complementing the 14-day VRRR (variable rate reverse repo) auctions with 28-day VRRR auctions in a similar calibrated fashion.

Besides, he said that RBI retains the flexibility to conduct fine-tuning operations of varying amounts as and when required.

"Even with all these operations, the liquidity absorbed under the fixed rate reverse repo would still be around Rs 2 to 3 lakh crore in the first week of December 2021," he added.

Furthermore, he said with the resumption of normal liquidity operations since mid-January 2021, 14-day VRRR auctions have been deployed as the main instrument under the liquidity management framework.

"Market appetite for VRRRs has been enthusiastic. Moreover, the higher remuneration which VRRR offers vis-a-vis the fixed rate reverse repo is also rendering the former relatively attractive."

Additionally, he reiterated that VRRR auctions are primarily a tool for rebalancing liquidity as part of liquidity management operations and "should not be interpreted as a reversal of the accommodative policy stance."

Since the onset of the pandemic, the Reserve Bank has maintained ample surplus liquidity to support a speedy and durable economic recovery. The level of surplus liquidity in the banking system has increased further during September 2021.

Even with absorption under fixed rate reverse repo, VRRRs and fine-tuning operations under the liquidity adjustment facility (LAF), it has averaged about Rs 9 lakh crore per day as against Rs 7 lakh crore during June to August 2021.

The surplus liquidity rose even further to a daily average of Rs 9.5 lakh crore up to 6 October.

In addition, Das said the potential liquidity overhang amounts to more than Rs 13 lakh crore.

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Topics:  RBI Governor   liquidity   Crashing economy 

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