Even because the inventory market rallied to new peaks, Reserve Bank of India (RBI) Governor Shaktikanta Das on Tuesday mentioned the central financial institution will conduct fine-tuning operations to handle unanticipated and one-off liquidity flows.
This is being accomplished to facilitate gradual restoration of the variable price reverse repo (VRRR) as markets settle all the way down to common timings and functioning and liquidity operations normalise. “The Reserve Bank will also conduct fine-tuning operations from time to time as needed to manage unanticipated and one-off liquidity flows so that liquid conditions in the system evolve in a balanced and evenly distributed manner,” Das mentioned on the annual FIMMDA-PDAI Conference.
The RBI Governor’s assertion comes after US Fed Chairman Jerome Powell final week indicated that the central financial institution just isn’t in a rush to boost rates of interest. Any delay in hike in charges by the US Fed is anticipated to lead to extra international funding flows. On its half, the Reserve Bank will endeavour to make sure satisfactory liquidity within the G-sec market as an integral ingredient of its effort to keep up comfy liquidity situations within the system, Das mentioned. “In my monetary policy statement of August 6, 2021, I had set out a roadmap for the gradual restoration of the variable rate reverse repo (VRRR) auction as the main operation under the revised liquidity management framework announced on February 6, 2020,” he mentioned.
ExplainedRestoration of VRRRThe fine-tuning is being accomplished to facilitate gradual restoration of variable price reverse repo as markets settle all the way down to common timings.
In the wake of the pandemic, when fiscal response resulted in a pointy improve in authorities borrowing, the market operations performed by Reserve Bank not solely ensured non-disruptive implementation of the borrowing programme, but additionally facilitated the steady and orderly evolution of the yield curve, he mentioned.
On the financial system, Das mentioned, “While there are signs of recovery, we are not yet out of the woods.”
He mentioned the sudden shock delivered by the pandemic referred to as for swift and decisive coverage responses. Central banks throughout the globe responded by decreasing rates of interest, increasing their steadiness sheets by large-scale buy of presidency securities (G-secs) and different belongings and injecting huge quantities of liquidity into the monetary system, he mentioned.
Many central banks additionally applied measures concentrating on particular market segments that have been witnessing heightened stress.
