RBI Reiterates Focus On Maintaining Liquidity Through Mix Of Instruments

The Reserve Bank of India reiterated its focus on ensuring stability and orderliness in all segments of financial markets. The Indian central bank will continue to remain nimble and flexible in liquidity management through main and fine-tuning operations in both repo and reverse repo, Governor Shaktikanta Das said in his monetary policy speech on Friday.

"We will deploy an appropriate mix of instruments to ensure modulate frictional and durable liquidity, so as to ensure the money market evolves in an orderly manner."

Das highlighted the dynamic liquidity conditions in recent months, with prolonged deficit liquidity, intermittently turning into surplus as recently as early June. The RBI undertook variable rate reverse repo auctions in the first half of April to absorb excess liquidity of Rs 2.3 lakh crore, while conducting variable rate repo auctions in the latter half of April and early May, to inject liquidity to the extent of Rs 12 lakh crore, Das said.

On May 6, one overnight variable reverse rate repo auction was conducted, which mopped up Rs 0.26 lakh crore, and two such auctions of three days maturity, each, were conducted on June 4, which absorbed Rs 0.44 lakh crore.

Due to this, banks' recourse to marginal standing facilities—a window under which banks can obtain liquidity overnight if interbank liquidity dries up—has remained low in FY25 so far, he added.

Average borrowings under the MSF stood at Rs 8,928 crore during April–June, lower than Rs 23,861 crore during February–March, according to RBI data.

The weighted average call rate, on average, has remained close to the middle of the corridor of the marginal standing facility rate at 6.75% and the standing deposit facility at 6.25%. The WACR averaged 6.57% during April–June, up from 6.61% during February–March, RBI data showed.

The yields on certificates of deposit, commercial papers issued by non-bank financial companies, and three-month Treasury bills eased.

Monetary transmission remains ongoing in the credit market, Das said.

On May 24, RBI transferred a dividend payout of Rs 2.1 lakh crore to the government, increasing the contingent risk buffer to 6.5% of the annual balance sheet in FY24. A higher-risk provision would strengthen the RBI's balance sheet going forward, Das said.

Further, the governor highlighted that the Indian rupee moved in a narrow range with low volatility up to June 5 this financial year so far, despite foreign portfolio outflows in recent weeks.

"The relative stability of the Indian rupee bears testimony to India's sound and resilient economic fundamentals, its macroeconomic and financial stability, and its improvement in external outlook," Das said.