RBI Governor Shaktikanta Das announced that the reversal of liquidity facility under SDF and MSF will now be permitted by the Reserve Bank of India even on weekends and holidays.
“We propose to allow reversal of liquidity facilities under both Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) even during weekends and holidays with effect from December 30, 2023,” Governor Shaktikanta Das said in his Monetary Policy announcement.
Das said that this to facilitate better fund management by banks. “The measure to be reviewed after six months.”
Earlier, when funds parked in SDF and taken from MSF on Fridays, they used to get reversed on Mondays, but now this will get reversed on weekends.
The Reserve Bank of India today decided to keep the policy rate unchanged at 6.5% for the fifth time in a row as it maintains a tight vigil on inflation. The rate increase cycle was paused in April after six consecutive rate hikes, aggregating to 250 basis points since May 2022. Consequently, Standing Deposit Facility rate will remain at 6.25% and Marginal Standing Facility (MSF) at 6.75%.
Through standing deposit facility (SDF), the RBI sucks out excess liquidity in the banking system as part of Liquidity Adjustment Facility (LAF) corridor. Through the marginal standing facility (MSF), RBI supplies liquidity when conditions are challenging.
The RBI chief said that system liquidity, as measured by the net position under the liquidity adjustment facility (LAF), turned into deficit mode for the first time in September 2023 after a gap of nearly four and a half years since May 2019 but central bank expects liquidity conditions to ease as government spending picks up.
“Deficit liquidity conditions persisted during October and November prompting large recourse to the marginal standing facility (MSF) by banks. In parallel, utilisation of the standing deposit facility (SDF) has also been high. The overall tightening of liquidity conditions is attributed mainly to higher currency leakage during the festive season, government cash balances and Reserve Bank’s market operations,” the governor said.
More recently, the governor noted, as government spending has picked up and system liquidity has got more evenly balanced among market participants, pressures have eased and the net LAF position has evened out broadly. He expects government spending to further ease liquidity conditions, vowing that the Reserve Bank will remain nimble in liquidity management.
The Indian government on Wednesday sought parliament’s approval for additional spending of Rs 1.29 in the current fiscal year, mainly towards higher subsidies for farmers and a rural job employment programme. The government said the net additional spending for the current fiscal yea ..
Comments
0 comment