Excess
liquidity in the banks and financial institutions is going to push the
inflation, and also the stock market speculation, up.
The
91-day Treasury Bills (TB) weighted average interest rates has dropped to bottom
low of 0.0164 per cent yesterday on November 26, according to the central bank.
The
lowest short term excess liquidity management tool – the 91-day TB –weighted
average interest rates reflects low borrowing from the banks and financial
institutions, which are parking their money at almost zero interest at the
central bank.
The
excess liquidity in one hand will fuel the inflation that is already expected
to stand at two digit – due to CA election and its expenses – and increase the
speculation in the stock market.
The
91-day Treasury Bills (TB) weighted average interest rates had stood at 9.65
per cent on January 11, 2011, due to tight liquidity then But the rate has
dropped to the lowest on November 21, due to surplus liquidity at present.
The
central bank has issued reverse repo four times and is issuing the fifth Rs 10
billion-worth reverse repo today to absorb excess liquidity from the banks and
financial institutions and contain the inflation. But reverse repo is a short
term measure to suck the liquidity from the market as the liquidity will again
flow back to the market soon. The
banks and financial institutions purchase treasury bills from the central bank
as they have excess liquidity and low lending.
The central bank has already absorbed Rs 35 billion from the
market through reverse repo before the this fifth reverse repo in the current
fiscal year. With today's reverse repo
The central bank has
calculated that there is around Rs 50 billion liquidity in the banking system
that will increase the inflationary pressure.
No comments:
Post a Comment