The cut in the cash reserve ratio (CRR) and infusion of ₹1.16 lakh crore into the banking system will not be sufficient to address the concerns over liquidity tightening being anticipated over the next few months, say bankers.
While the infusion partially compensates for the loss of liquidity seen in November, bankers suggest that the RBI may need to take additional measures, such as open market operation (OMO) purchases, longer-tenure variable rate repo (VRRs) and forex swaps, to inject further liquidity.
"Constant inflation worries and a strong US dollar environment may limit repo rate cuts (to two). In this environment, liquidity instruments are likely to dominate... as the new year begins, we believe the central bank will bring out all the other liquidity instruments in its armoury: longer-tenure VRRs, OMO purchases, and longer-tenure FX swaps," said Pranjul Bhandari, India economist, HSBC.
RBI governor Shaktikanta Das on Friday announced a 50-bps cut in the CRR to infuse liquidity in the banking system. The CRR reduction will be phased in two equal tranches, on December 14 and 28.
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