When the central
bank had reduced (Cash Reserve Ratio) CRR in the Monetary Policy for the
current fiscal year 2013-14 to support private sector lending that could propel
the economic growth, it had no idea the excess liquidity in banks and financial
institutions is going to fuel inflation only.
Six months
down the line, the banks and financial institutions are bulging with cash and
private sector is still in 'wait and watch' mood, not really borrowing compared
to the last fiscal, forcing the central bank to mop up excess liquidity every
alternative week.
The central
bank is all set to introduce the eighth round of reverse repo – tomorrow – to absorb excess liquidity from the financial system for seven days.
The reverse
repo worth Rs 19.5 billion. So far the central bank had already issued seven
reverse repo worth Rs 126.5 billion, apart from an outright sale auction worth
Rs 8.5 billion in September to absorb liquidity from the banks and financial
institutions.
In the last two rounds of
reverse repo held last week, the weighted average reverse repo rate stood at
0.07 per cent.The banks and financial institutions have been sitting on around Rs 70 billion excess liquidity that is expected to flow to stock market.
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