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  • Booming markets: RBI Governor warns stretched valuations pose monetary stability danger

    Image Source : PTI Booming markets: RBI Governor warns stretched valuations pose monetary stability danger
    There is a disconnect between booming markets and financial exercise, Reserve Bank Governor Shaktikanta Das stated on Monday, warning that the stretched valuations of monetary property pose a danger to monetary stability.
    “The disconnect between certain segments of financial markets and the real economy has been accentuating in recent times, both globally and in India,” Das stated in his foreword to the bi-annual Financial Stability Report (FSR).
    “Stretched valuations of financial assets pose risks to financial stability,” he warned.  
    The RBI Governor requested banks and monetary intermediaries to be cognisant of this danger, given the interconnected nature of the monetary system.

    After a pointy 40 per cent correction in March final 12 months following the COVID-19 outbreak, the Indian markets have grown by over 80 per cent in a rally which continues. The variety of new demat account openings are additionally at a file excessive.
    Das had made comparable feedback on the disconnect earlier as nicely however that is for the primary time he’s linking it with the broader facet of monetary stability.
    The sharp rally in inventory markets has come even because the GDP is ready to contract by 7.5 per cent this fiscal, as per RBI’s estimates, primarily due to the pandemic and resultant lockdowns.
    Easy liquidity situations internationally are stated to be the prime motive for the market rally, with abroad buyers chasing increased yields.
    However, some market contributors say the markets are taking a long term name on the Indian financial system, past the near-term unfavourable information flows. 
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  • RBI to renew regular liquidity administration operations in phased method

    Image Source : PTI RBI to renew regular liquidity administration operations in phased method
    The RBI on Friday mentioned it has determined to revive regular liquidity administration operations in a phased method and can conduct variable charge reverse repo public sale of Rs 2 lakh crore on January 15. In February final 12 months, RBI had introduced a revised Liquidity Management Framework (LMF) that was simplified and “clearly communicated” the targets and toolkit for liquidity administration.
    However, in view of the COVID-19 outbreak, the quickly evolving monetary situations and considering the impression of disruptions because of the lockdown, RBI had determined to briefly droop the revised LMF and the window for Fixed Rate Reverse Repo and Marginal Standing Facility (MSF) operations had been made accessible all through the day.
    This was supposed to offer eligible market contributors with better flexibility of their liquidity administration.
    “On a review of evolving liquidity and financial conditions, it has been decided to restore normal liquidity management operations in a phased manner,” RBI mentioned.

    Accordingly, it can conduct a Variable Rate Reverse Repo public sale on January 15, 2021 beneath the revised LMF issued on February 6, 2020. The notified quantity is Rs 2,00,000 crore, it mentioned.
    RBI additional mentioned the Fixed Rate Reverse Repo and MSF operations will proceed to be accessible all through the day.
    “As stated in the last MPC (Monetary Policy Committee) statement on December 4, 2020, it is reiterated that the Reserve Bank will ensure availability of ample liquidity in the system,” the central financial institution added.
    In view of operational dislocations and elevated stage of well being dangers posed by COVID-19, RBI had additionally determined to truncate buying and selling hours for varied market segments with impact from April 07, 2020.
    Later, with the graded easing of lockdown restrictions, it was determined to revive buying and selling hours for markets regulated by the Reserve Bank in a phased method with impact from November 9, 2020.
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