RBI aims to reduce surplus liquidity by over Rs 5 lakh crore by December

The Reserve Bank of India (RBI) intends to reduce surplus liquidity by over Rs 5 lakh crore by December 2021 and as such, has drawn a roadmap. The central bank said currently surplus liquidity is at an average of Rs 9.5 lakh crore in October, and the potential liquidity overhang amounts to more than Rs 13 lakh crore.

RBI Governor Shaktikanta Das said they plan to bring down the surplus liquidity so that its borrowings from banks under the reverse repo operation would come down to Rs 2-3 lakh crore by December 2021. It is currently around Rs 8.8 lakh crore. “We do not want suddness. We do not want surprises. We do not want to rock the boat, more so, because we have to reach the shore, which is now visible and there is a journey beyond the shore,” Das said in his post-policy address.

He had earlier said that RBI will conduct fine-tuning operations from time-to-time as needed to manage unanticipated and one-off liquidity flows so that liquid conditions in the system evolve in a balanced and evenly distributed manner. In August, in the last Monetary Policy Committee (MPC) review, the central bank had kept key rates unchanged for the seventh successive time. It held the repo rate, its key lending rate, steady at 4% and the reverse repo rate, the borrowing rate at 3.35%.

Das said the RBI would work towards its 4% inflation goal by going forward in a calibrated manner and without creating disruption. Flagging concerns on inflationary impact of high indirect taxes on fuel, he said it was for the government to take a decision on the issue.

The MPC voted 5:1 in favor of maintaining status quo on the repo rate at 4%. RBI also decided to maintain the reverse repo rate at 3.35%. “We are looking at the growth signs to become entrenched and show signs of durability. We are closely watchful of the evolving dynamics,” Das said.

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Furthermore, the central bank retained its projection for the real GDP growth at 9.5%, but lowered its FY22 retail inflation projection to 5.3% from 5.7%, saying the inflation trajectory has turned out to be more favorable than expected.