close
This ad will auto close in 10 seconds

RBI may infuse Rs 55,000 cr via through open market operations

With an objective of keeping liquidity at neutral level, Reserve Bank is likely to infuse Rs 55,000 crore through open market operations (OMO) in the second half of this financial year


RBI may infuse Rs 55,000 cr via through open market operations

Mumbai: With an objective of keeping liquidity at neutral level, Reserve Bank is likely to infuse Rs 55,000 crore through open market operations (OMO) in the second half of this financial year, says a report.

"We expect that another Rs 55,000 crore of durable liquidity needs to be infused through OMO purchases in second half of 2016-17. Our base case scenario is built on RBI's stated objective of neutral liquidity, which ensures minimal shortages as well as minimal surpluses," India Ratings and Research said in a note.

It said since Rs 1.05 trillion liquidity has been infused by RBI in the first half of this fiscal, necessity of similar amount of OMO in second half will only be limited to certain conditions.

"It would be contingent upon subdued net forex flows, or lower than estimated USD 17.4 billion balance of payment surplus, sharp rise in currency in circulation (CIC) against tepid growth in nominal variables and RBI continuing to maintain high surplus liquidity in the interbank market against the stated strategy for neutral liquidity," it said.

The note said after financing of the current account deficit (CAD), it expects the capital inflows to add nearly USD 17.4 billion (Rs 1.18 trillion) to the forex reserve in the 2016-17.

These accretions take into account the FCNR (B) redemptions. According to the latest BoP data available, USD 7 billion had been added to the forex reserves till August 2016.

It said growth rate in CIC for the current year is likely to be restricted by multiple factors, such as drive against declaration of unaccounted wealth which could bring back large amount of cash into the system.

The rating agency said there may be legitimate reasons to retain the appetite for OMO purchase in the next fiscal ahead of limited room for the incremental rating action.

"This will support policy makers to maintain an accommodative strategy in sync with the RBI's accommodative stance," it said.

The note said absence of rate action or OMO purchase may exert undue pressure on yields during the financial year 2017-18, limiting the efficacy of RBI's accommodative monetary policy transmission.

From Zee News

0 Comment - Join the Discussions

trending

photo gallery

video