RBI to drain excess liquidity to counter inflation: Reports
07/07/2015 14:08

According to experts, the Reserve Bank of India will be aiming to drain money markets of excess liquidity to counter inflationary pressures arising from higher government spending, certain sections of media reported.

But according to commercial bankers it will be easier for the banks to reduce lending rates if surplus liquidity prevailed for some months.

As per reports, the liquidity surplus which is around Rs 350 billion has dragged the average call money rate down to 7 per cent this month. Some analysts expect the liquidity to reach Rs 300 billion to Rs 500 billion by August.

Commenting on the issue, a Senior Official told the media, “RBI wants to nudge the call rate up to nearer the 7.25 per cent policy repo rate.”

“The RBI will stick with its current approach of draining excess cash largely through variable reverse repos. As long as the market is able to come and give the funds back to the RBI, it should not be a problem," he added.