- News>
- Finance & Markets
RBI internal group moots setting up market stabilisation fund
Mumbai, Dec 02: A Reserve Bank of India internal group has recommended that the government should consider setting up of a market stabilisation fund (MSF) in a public account to mop up surplus liquidity from the system.
Mumbai, Dec 02: A Reserve Bank of India internal
group has recommended that the government should consider
setting up of a market stabilisation fund (MSF) in a public
account to mop up surplus liquidity from the system.
The internal group on liquidity adjustment facility (LAF)
and sterilisation, which released its report today seeking
public comments, has mooted a standing deposit type facility
distinct from cash reserve ratio (CRR) for banks to achieve a
balanced development of various segments of money market.
On repo/reverse repo operations, it said a minimum tenure of such transactions under LAF facility should be changed from overnight to seven days to be conducted on a daily basis.
With surplus liquidity in the economy, the importance of the bank rate as a signalling rate seems to have reduced and therefore it would desirable that liquidity injection should take place at a single rate, it said.
The group has recommended in this context that RBI may continue to announce the bank rate independently as at present, but it should under normal circumstances stay aligned to the reverse repo rate.
Referring to the need for setting up of MSF, which could be operationalised whenever considered necessary, the group said in view of the finite stock of government securities available with RBI for sterilisation, the government may consider such a move.
This fund could issue market stabilisation bills/bonds (MSBs) for mopping up enduring surplus liquidity from the system over and above the amount that could be absorbed under the day to day repo operations of LAF.
Bureau Report
On repo/reverse repo operations, it said a minimum tenure of such transactions under LAF facility should be changed from overnight to seven days to be conducted on a daily basis.
With surplus liquidity in the economy, the importance of the bank rate as a signalling rate seems to have reduced and therefore it would desirable that liquidity injection should take place at a single rate, it said.
The group has recommended in this context that RBI may continue to announce the bank rate independently as at present, but it should under normal circumstances stay aligned to the reverse repo rate.
Referring to the need for setting up of MSF, which could be operationalised whenever considered necessary, the group said in view of the finite stock of government securities available with RBI for sterilisation, the government may consider such a move.
This fund could issue market stabilisation bills/bonds (MSBs) for mopping up enduring surplus liquidity from the system over and above the amount that could be absorbed under the day to day repo operations of LAF.
Bureau Report