Surplus cash may prompt RBI to hike key rates
Banks are parking surplus funds, in the range of Rs 20,000-25,000 cr, with the Reserve Bank of India on a daily basis. Inflation: Sectors to invest | War on Inflation
By TNN |
MUMBAI: The banking industry is sitting on a huge pile of funds ahead of the next week���s credit policy review. As against an outgo of Rs 18,500 crore towards the cash reserve ratio (CRR) over the next two fortnights, banks are parking surplus funds, in the range of Rs 20,000-25 ,000 crore, with the Reserve Bank of India (RBI) on a daily basis.
Taken together ��� funds floating in the call money market, the market for collateralised borrowing and lending obligations (CBLO) and funds parked by banks with the central bank under the reverse repo window ��� surplus cash flows in the market could be closer to Rs 1,00,000 crore.
Treasury officials say that such surplus cash conditions may surely prompt RBI to announce further rate actions. These could include selling more bonds under the market stabilisation route or worse still, a hike in key rates ��� repo and reverse repo rates.
Taken together ��� funds floating in the call money market, the market for collateralised borrowing and lending obligations (CBLO) and funds parked by banks with the central bank under the reverse repo window ��� surplus cash flows in the market could be closer to Rs 1,00,000 crore.
Treasury officials say that such surplus cash conditions may surely prompt RBI to announce further rate actions. These could include selling more bonds under the market stabilisation route or worse still, a hike in key rates ��� repo and reverse repo rates.
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It may be recalled that cash conditions had turned extremely tight in the last week of March. However, the situation did improve in the first week of April, as the government resumed its spending programme.
Apart from government spending, some amount of intervention by the central bank in the foreign exchange market could have also led to improvement in the liquidity scenario, according to treasury managers.
A senior dealer with a private sector bank said, ���There are reasons for the ample cash conditions seen at the moment. There has been a lower-than-expected bond auction under the market stabilisation route this week.
Secondly, RBI was intervening heavily in the forex market, buying dollars in the spot market and selling them in the forwards market. The unwinding of these contracts has brought in more liquidity into the system.���
Most market participants are on a wait-and-watch mode, as the CRR hike will be effective only from April 26 so the actual impact can be seen trickling in only from next week. Traders in the bond market are divided on their view on the monetary policy.
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The broad consensus is that the current hike in the CRR to 8% may not suffice to tackle the rising cash flows and spiralling inflation. This may leave RBI with no option, but to tighten rates.
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