CRR cut from RBI most likely in March: Experts - News - Share.Dhangout.com
CRR cut from RBI most likely in March: Experts
On a daily basis banks are borrowing nearly Rs 1.9 trillion from the RBI for an overnight period. There is ultra short-term liquidity crunch but longer term rates are falling, for want of demand for loans.
The tools to tackle such a short-term liquidity deficit as per Ashima Goyal from IGIDR and A Prasanna, Chief Economist at ICICI Securities Primary Dealership are a CRR cut and conduct more OMOs to swap foreign securities for domestic on their balance sheet .
They also feel that a cut in CRR is not going to lead to excess liquidity or a rise in aggregate demand overnight. It will take several quarters to get the desired result.
Below is the edited tran of the interview. Also watch the accompanying video.
Q: Your analyses as to why this liquidity deficit is getting to be so persistent despite regular OMOs by the RBI as well as one hefty CRR cut?
Prasanna: One has to see the OMOs which RBI has done as far as the CRR cut in the context of how much of liquidity has gone away from the tem. There are two ways in which liquidity has gone away from the tem in the current financial year. One is through currency withdrawal by the public which happens almost every year. My estimate is around 1 lakh crore has gone through this route. The other route of course is RBI's FX intervention where RBI sold dollars to prop up the rupee and more than a lakh crore of rupees also went out through that route.
Compared to that roughly around one lakh ten thousand crore is OMO which RBI has done and they have cut one CRR which would amount to around 32,000 crore. With more than 2 lakh crore of leakage which has not been fully replaced by RBI and we started the year also with liquidity deficit, if you remember in April. So that pretty much explains why this liquidity deficit has persisted and has been increasing.
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