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If liquidity remains tight, RBI to conduct OMOs: H R Khan

BS Reporter/Mumbai 28 Nov 12 | 12:53 AM

The Reserve Bank of India (RBI) will conduct open market operations (OMOs) to infuse liquidity in the system if the present tightness persists.

While speaking on the sidelines of the Ficci-BOAO conference here, Deputy Governor H R Khan said, “Whenever there is need, we will do OMOs." Adding, when asked if there was a need at present, “At this point of time, I can’t say if there is a need to do OMOs."

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The banks are daily borrowing a little over Rs 1 lakh crore over recent days from RBI under the latter’s liquidity adjustment facility (LAF) window. Today, they borrowed Rs 106,455 crore. Under OMO purchase auctions, RBI purchases gilts in the open market to enhance liquidity in the system. In this financial year, it has infused Rs 54,573 crore by way of OMOs.

Khan said he hoped the liquidity tightness was temporary and the deficit would soon be in a more comfortable zone, resulting in lesser borrowing from the LAF window.

“If government starts spending, the liquidity situation will be comfortable. Also, if the gap between credit and deposits narrows, that would also be comfortable for liquidity," he said. Cash leakage was more than expected in the festival season, he said.

“We also expect the cash which has gone out in the season to come back in the system," he added.

A currency swap agreement would soon be signed with Japan for $15 billion, Khan said. India had a swap agreement with Japan worth

$3 billion; it lapsed last year. Currently, we have swap agreements with Saarc countries, he added.

RBI has received seven-eight applications for ‘White Label ATMs’ (automated teller machines to be set up and operated by non-bank entities), he disclosed. The final date for doing so is December 31.

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