RBI charts plan to cut surplus liquidity by over Rs 5 lakh crore by December – Times of India

MUMBAI: RBI has drawn a roadmap to reduce surplus liquidity by over Rs 5 lakh crore by December 2021 even as the monetary policy committee has chosen to maintain a status quo on rates and its accommodative stance as well as growth projections.
This could be as good as it gets for borrowers as the withdrawal of liquidity will put pressure on bond yields, which could eventually get passed on to loans as well.
Announcing the liquidity normalisation roadmap, governor Shaktikanta Das said currently surplus liquidity is at an average of Rs 9.5 lakh crore in October so far and the potential liquidity overhang amounts to more than Rs 13 lakh crore. RBI plans to bring down the surplus liquidity so that its borrowings from banks under the reverse repo operation would come down to Rs 2-3 lakh crore by December 2021. It is currently around Rs 8.8 lakh crore. “We do not want suddenness. We do not want surprises. We do not want to rock the boat, more so, because we have to reach the shore, which is now visible and there is a journey beyond the shore,” Das said in his post-policy address, explaining the rationale behind not reducing liquidity.

He said RBI would work toward its 4% inflation goal by going forward in a calibrated manner and without creating disruption.
Das once again flagged concerns on inflationary impact of high indirect taxes on fuel and said it was for the government to take a decision on the issue. “The gradual and calibrated unwinding of liquidity measures will support growth, while keeping inflation under control,” said CH SS Mallikarjuna Rao, MD & CEO, PNB.
The monetary policy committee voted 5:1 in favour of maintaining the status quo on the repo rate at 4%. RBI also decided to maintain the reverse repo rate at 3.35%. Economists saw the governor being circumspect about growth from his policy statements, although all growth targets were retained. “We are looking at the growth signs to become entrenched and show signs of durability. We are closely watchful of the evolving dynamics,” said Das.
For the current financial year, RBI on Friday retained its projection for real GDP growth at 9.5%. The RBI however lowered its FY22 retail inflation projection to 5.3% from 5.7%, saying the inflation trajectory has turned out to be more favourable than expected. He re-assured markets that liquidity will be available for growth and the absorption will be through reverse repo where participation is voluntary. He, however, indicated that there was no further need for government securities acquisition programme (G-SAP) through which RBI bought back bonds.