As the width of the policy corridor acts as an independent instrument for the central bank in a crisis and an asymmetric corridor is a logical outcome under such. "Thus, the RBI is not obliged to act on reverse repo rate only in MPC."įurther, change in the reverse repo rate is an unconventional policy tool that the RBI has effectively deployed during the crisis when it moved to a floor instead of the corridor.
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She added that nowhere in the MPC mandate is there any reference to its role in liquidity management, which remains internal to the functioning of the RBI. "Moreover, Section 45Z (3) of the amended RBI Act of 2016 clearly states that the monetary policy committee shall determine the policy rate required to achieve the inflation target," Ghosh said. Similarly, six-month and one-year T-bill rates have moved up by 20-30 bps since October.Īgainst this background, the report said, "We believe the talks of a reverse repo rate hike on December 8 may be premature as the RBI has been able to narrow the corridor without the noise of rate hikes and ensuing market cacophony. Moreover, the RBI has largely achieved its objective of pushing up short-term rates with a three-month T-bill rate that was below reverse repo in August, now at 3.52 per cent, factoring in the impact of VRRRs. Liquidity surplus has progressively narrowed since RBI stopped liquidity infusion through GSAP operations.Īlso, there has been calibrated progress towards liquidity normalisation since the October policy with the amount parked in overnight fixed reverse repo declining to Rs 2.6 lakh crore from Rs 3.4 lakh crore at pre-October policy.
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System liquidity though remains surplus with the average daily net absorption under the liquidity adjustment facility at Rs 7.6 lakh crore in November, durable liquidity has been declining and now stands at Rs 11.2 lakh crore compared to Rs 12.0 lakh crore at the time of the previous policy. See Zee Business Live TV Streaming Below: This is keeping in mind that the effective rate has already been pushed up with VRRRs (variable reverse repo repurchases) and the amount and tenor of the same can be fine-tuned for the desired outcome, she added.