Reuters Market Eye - The RBI may take further measures if liquidity conditions improve, running counter to its goal of draining cash. Lenders’ borrowing from the marginal standing facility window - an emergency funding window - has come down, pushing down overnight cash rates to 8.00/8.15 percent, much below the central bank’s emergency funding rate of 10.25 percent.
Traders say signs of accelerating government spending are improving liquidity.
That would run counter to the RBI’s cash-draining measures which sought to reduce the amount banks can borrow from the central bank in order to spur them to raise funds at the higher MSF rates.
Standard Chartered analysts say the RBI could look at further lowering the cap on banks’ borrowing, selling more shorter-tenor securities to drain cash, fine-tuning the export credit refinance scheme or temporarily increasing the cash reserve ratio, or the amount of cash lenders must keep with the central bank.
Standard Chartered expects the announced steps to stay in place for at least two months.
Reporting by Swati Bhat