The Reserve Bank today said open market operations (OMOs) and cut in cash reserve ratio have not got liquidity deficit down to comfort levels and there can be more buyback of government bonds by the central bank.
Though the CRR cut and repeated OMOs have had the desired impact and eased pressure on liquidity, the deficit is yet to reach the RBI's comfort level, RBI Deputy Governor Subir Gokarn told reporters.
"The combined impact of the CRR cut and the cumulative impact of OMOs is starting to bring the liquidity pressure down," he said.
Banks, which were borrowing up to Rs 1,50,000 crore from the overnight window, are now doing up to Rs 1,00,000 crore which is above the RBI's stated comfort level of a deficit of around Rs 60-65,000 crore in the system, he said. On its strategy vis-a-vis liquidity injection, he said,
"We have not put a stop on OMOs by any means, they are still on the table but they are and will remain as a response to liquidity conditions."
The RBI keeps an eye on the overnight borrowings and the call rates before doing OMOs, he said. Call rates, which are hovering about 0.25 percent above the repo rate, have come down to "reasonable" levels, he said.
In order to ease the liquidity pressures, the RBI has so far bought government bonds of over Rs 70,000 crore through OMOs and cut CRR (cash reserve ratio) or the percentage of deposits banks have to park with it, by 0.50 per cent which infused further Rs 32,000 crore in the system.
When asked about the possibility of a further cut in CRR, Gokarn said CRR cut is much wider in nature as it is guided by both liquidity and monetary policy aspects unlike the OMO which is directed at liquidity easing only.
Gokarn also dismissed the notion that OMOs are done with a view of managing the yields on securities, saying it is liquidity management alone which prompts a OMO.
On asked what are the other options for liquidity easing before the RBI, Gokarn said theoretically it can infuse liquidity by buying foreign currency.
However, currency operations are governed more by the volatility than for liquidity management.
"It will not be motivated by liquidity objective, it will be motivated by volatility objective. That is an instrument that, if at all we use, is used with the view of smoothening volatility in the currency market," he said.
The RBI is reported to have sold over USD 5 billion in forex in the last two months in order to arrest the slide of rupee which had hit an all time low of Rs 54.30 to a dollar in December to become one of the worst performing currencies in Asia.
Gokarn also reiterated that policy rates are at the peak at present.