This could be in the best interest of borrowers, as the withdrawal of liquidity will put pressure on bond yields, which could eventually carry over to loans as well.
Announcing the Liquidity Normalization Roadmap, Governor Shaktikanta das It said that currently the surplus liquidity is averaging Rs 9.5 lakh crore in October so far and the potential excess liquidity amounts to more than Rs 13 lakh crore. RBI plans to reduce surplus liquidity so that its loans from banks on the reverse repository the operation would be reduced to Rs 2-3 lakh crore in December 2021. It is currently around Rs 8.8 lakh crore. “We don’t want roughness. We do not want surprises. We do not want to move the ship, even more so, because we have to reach the shore, which is now visible and there is a journey beyond the shore, “said Das in his post-policy speech, explaining the rationale for not reducing liquidity. .
He said that RBI would work towards its inflation target of 4% advancing in a calibrated way and without creating interruptions.
Das once again raised concerns about the inflationary impact of high indirect fuel taxes and said it was up to the government to make a decision on the issue. “The gradual and calibrated reversal of liquidity measures will support growth while keeping inflation under control,” he said. CH SS Mallikarjuna Rao, MD and CEO, PNB.
The monetary policy committee voted 5: 1 in favor of keeping the status quo on the buyback rate at 4%. The RBI also decided to keep the reverse repurchase rate at 3.35%. Economists viewed the governor as being cautious about growth based on his policy statements, although all growth targets were maintained. “We are seeing the signs of growth to establish ourselves and show signs of durability. We are attentive to the evolving dynamics, ”said Das.
For the current fiscal year, on Friday the RBI maintained its projection for real GDP growth at 9.5%. However, the RBI lowered its retail inflation forecast for fiscal year 22 to 5.3% from 5.7%, saying that the inflation trajectory has turned out to be more favorable than expected. He assured the markets that there will be liquidity available for growth and that the absorption will be carried out through reverse repos where participation is voluntary. However, he indicated that there was no further need for a government securities acquisition program (G-SAP) through which RBI repurchased bonds.