Many a person have been asking me whether the RBI will do a rate cut or not, as things stand there is a case for pause of one more month than for a rate cut , rate increase is not in question. The government has cut down spending and is sitting on a cash surplus position with the RBI in order to meet the target of 4.8 percent of the GDP as fiscal deficit. The going figure is that the government might even do better by end up with a figure of 4.65 percent. Whatever the final outcome the 4.8 line will not be crossed. This has tightened the liquidity in the market and in turn the banks credit figures are now down, as well as the deposit garnering figures too.
The RBI has deployed over the course of last week Rs 54,000 crore on an average daily via various channels like the repo window, marginal standing facility and the term repo window. They will further repurchase Rs10,000 crore worth of government securities on 22 January, as part of its open market operations, to inject liquidity into the financial markets.
If by these measures the liquidity crunch still exits then a case would be built up for a 25 basis point reduction on the crr rather than the repo. The governor is a smart man and he will wait and watch and monitor the situation till the last minute before taking a call. Reducing the crr would mean the easing of liquidity but not the interest rate per se. If he finds that the market can be managed by further OMC procedures in February and the month being a smaller one, then he might leave the rates untouched. We can safely conclude PAUSE is the answer with an out side chance of a crr cut.
The RBI has deployed over the course of last week Rs 54,000 crore on an average daily via various channels like the repo window, marginal standing facility and the term repo window. They will further repurchase Rs10,000 crore worth of government securities on 22 January, as part of its open market operations, to inject liquidity into the financial markets.
If by these measures the liquidity crunch still exits then a case would be built up for a 25 basis point reduction on the crr rather than the repo. The governor is a smart man and he will wait and watch and monitor the situation till the last minute before taking a call. Reducing the crr would mean the easing of liquidity but not the interest rate per se. If he finds that the market can be managed by further OMC procedures in February and the month being a smaller one, then he might leave the rates untouched. We can safely conclude PAUSE is the answer with an out side chance of a crr cut.