Central bank to issue another round of reverse repo, to mop up extra surplus liquidity to control double digit inflation

The central bank is planning to issue another round of reverse repo next week to mop up excess liquidity and contain price hike according to Monetary Policy that had targeted to keep inflation under 7.5 per cent.

The planned reverse repo of Rs 19.50 billion on Sunday could be the last one as the central bank is planning to bring in some permanent monetary instrument – like reducing Cash Reserve Ratio (CRR) and Statutiory Liquidity Ratio (SLR) that the Monetary Policy had revised downwards – to absorb excess liquidity instead of short term instrument like reverse repo.

The central bank data revealed that the inflation stands at 10.3 per cent in the fifth month of the current fiscal year 2013-14.

The central bank has already absorbed Rs 157.50 billion through earlier reverse repo, apart from Rs 8.50 billion through an outright sale auction.

With the latest Rs 19.50 billion, the total amount mopped up by the central bank from the market will come to Rs 185.5 billion.

The banking system has excess liquidity of around Rs 40 billion currently due to increasing deposit and low borrowing from the private sector as the business fraternity is waiting for the new government to take charge.

Likewise, the government's inability in spending in capital expenditure, the treasury has Rs 78 billion.