New Delhi: The Reserve Bank of India's move to inject Rs 2.5 lakh crore (yaani Rs 2,50,000 crore) into the banking system through repo auctions has raised questions over its liquidity management, even as the central bank pursues a tighter monetary policy to address inflation, according to a State Bank of India (SBI) Ecowrap report released on Friday, ANI reported.
SBI said the RBI had sent a clear and consistent tightening message through its policy resolution, the Governor's statement and the MPC minutes. It questioned, however, why liquidity was being injected through Variable Rate Repo auctions of Rs 2.5 lakh crore in the past week while the stated objective is to remain in a 'calibrated tightening' mode, The Hindu BusinessLine reported.
Source: The Hindu BusinessLine — SBI Capital flags RBI's 'inconsistency' in liquidity management
"We, however, find it a little difficult to understand the reasons behind the RBI's move to inject liquidity through repo auctions of Rs 2.5 lakh crore even as the primary objective is to ensure that the RBI is in a 'calibrated tightening' mode and the RBI Governor also emphasising less on liquidity in the October policy," said Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, quoted in the Ecowrap report.
Source: The Hindu BusinessLine — SBI Capital flags RBI's 'inconsistency' in liquidity management
The report noted that the RBI has also been conducting Variable Rate Reverse Repo auctions to absorb liquidity, and that Governor Sanjay Malhotra had stressed external conditions and financial stability in the October policy, with inflation concerns taking centre stage after a rate hike, according to BusinessLine's account of the report.
Source: The Hindu BusinessLine — SBI Capital flags RBI's 'inconsistency' in liquidity management
SBI also pointed to the RBI's decision to cancel all Treasury bill auctions, suggesting markets could read the steps as attempts to fine-tune bond-yield movements. Despite these steps, SBI expects Indian government bond yields to remain elevated, citing expected high crude oil prices and global bond market developments, ANI reported.