Mumbai: The Reserve Bank will conduct open market operations (OMOs) or reduce cash reserve ratio (CRR) depending on the liquidity deficit situation, Deputy governor Subir Gokarn said on Tuesday.
Use of CRR or OMOs as instruments to ease liquidity shortage will depend on the nature of deficit, he told reporters at the customary post-policy meeting.
"It entirely depends on how the liquidity situation pans out," Gokarn, in-charge of the monetary department at RBI, said.
According to him, the central bank uses OMOs to tide over short-term deficit, but prefers CRR cuts if the deficit persists longer.
"The consideration is persistence versus transitoriness of liquidity shortages. If...Deficit is short-lived, for may be a few weeks, we obviously opt for OMOs. It's much quicker to do, it can respond to immediate pressures.
"Where the liquidity deficit is likely to be persist longer, requiring some kind of structural adjustment, then CRR is more effective instrument," Gokarn said, adding that rising gap between credit and deposit rates is the main source of potential liquidity pressure going forward.
The overnight borrowing by the banks has shot up to more than Rs 1 trillion in the recent time.
The Bank, in its mid-year monetary policy review today, left the key interest rates unchanged but reduced CRR by 0.25 percent to infuse additional liquidity of Rs 17,500 crore into the system.
On the lingering global slowdown and its impact on the domestic economy, Gokarn said there is a spillover impact.
"There is spillover effect from the global recession. But, countries like ours do have the ability to stimulate some of the drivers to offset some of those impacts...And that's where our policy focus is shifting to," he added.
First Published: Tuesday, October 30, 2012, 20:59