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RBI promises to roll back tough liquidity tightening steps
Source: PTI July 30, 2013
The Reserve Bank on Tuesday promised to roll back liquidity tightening steps it took recently to arrest exchange rate volatility, an assurance that will provide relief to bankers as well as industry.
"The recent liquidity tightening measures by the RBI are aimed at checking undue volatility in the foreign exchange market and will be rolled back in a calibrated manner as stability is restored to the foreign exchange market," RBI Governor D Subbarao said while unveiling the first quarter review of the monetary policy.
The withdrawal of the measures would "enable monetary policy to revert to supporting growth with continuing vigil on inflation," he said.
"The Reserve Bank stands ready to use all available instruments and measures at its command to respond proactively and swiftly to any adverse development."
The decline of the rupee to a record low of 61.21 against the dollar on July 8 forced the RBI to take a series of unconventional
measures to curtail liquidity and curb speculation in the past fortnight.
On July 15, the Reserve Bank put in place measures to restore stability in the foreign exchange market, including raising the Marginal Standing Facility and bank rates to 10.25 per cent and restricting access by way of repos to Rs 75,000 crore (Rs 750 billion).
The central bank also conducted open market sales of government securities of Rs 2,500 crore (Rs 25 billion) on July 18, the RBI review said.
As a contingency measure, the central bank opened a dedicated special repo window for a notified amount of Rs 25,000 crore (Rs 250 billion) for liquidity support to mutual funds that face redemption pressure.
On July 22, the RBI rationalised import of gold by making it incumbent on all nominated banks to ensure that at least one-fifth of the imported metal is exclusively made available for the purpose of exports.
A day later, the RBI directed banks to draw only 50 per cent of their total deposits in overnight borrowings and maintain a 99 per cent average cash reserve ratio everyday.
Source:
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