“The RBI has started unwinding its ultra-loose monetary condition in a very careful manner. Not using the scheduled
meeting for this announcement is a nuanced approach so that it is less disruptive," said Soumyajit Niyogi, associate director at India Ratings and Research.
The immediate impact of this should be visible on short-term rates. On Wednesday’s treasury bill auctions, the cut-off yields of 91-day to 364 days treasury bills came at 3.02-3.44 per cent. That means even one year money is available below the overnight reverse repo rate of the RBI.
This is because the banking system liquidity has been kept at nearly Rs 6 trillion, while the entire system liquidity, including government balances, continues to remain above Rs 8-trillion mark. And the RBI’s assurance so far has kept the rates ultra-low for everyone, including for top-rated private firms.
Such low rates have been discussed even among the MPC members, who were worried that such low rates and plentiful liquidity would feed into inflation and the conduct of the monetary policy would turn challenging.
The restoration announcement and the act of restoring the normal timing for the window “should realign short-term rates towards repo rate and above”, Niyogi said.
Having said that, experts do say it would be a very long time before the RBI gets back to its original stance of keeping liquidity contained at plus-minus 1 per cent of the total deposit base, which is roughly about Rs 1.5 trillion surplus or deficit liquidity, depending upon the stance of the monetary policy.
The RBI still carries on with an ‘accommodative’ policy stance, and that too would likely not change before the second half of the calendar year, economists say.
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