India's central bank is closely monitoring liquidity in the banking system and does not see any sign of stress as of now, going by the current call rates, one of its deputy governors said on Monday. Shyamala Gopinath was responding to a query on whether the Reserve Bank of India (RBI) would conduct open market operations to tide over an expected cash crunch in mid-June, when quarterly advance tax payments by corporates would fall due.
The interbank call money rate ended at 7.30/35 percent on Monday a tad above the repo rate of 7.25 percent, which is the rate the central bank monitors for any signs of acute cash stress. Liquidity, which is currently running at a deficit of around 600 billion rupees ($13.4 billion) compared with the RBI's comfort zone of around 500 billion rupees, is expected to tighten beyond 1 trillion rupees in mid-June when corporates make their advance tax payments for the first quarter.
Earlier in the day, another deputy governor of the RBI said banks may use the newly introduced Marginal Standing Facility in case liquidity tightens sharply next week. Gopinath said the RBI hopes to conduct the government's market borrowing programme for the 2011/12 fiscal year smoothly.
The 10-year benchmark government bond yield, which rose 68 basis points (bps) to 8.48 percent on May 30 - its highest since its April 8 issuance - on inflation and tight cash worries, tumbled 19 bps last week, its biggest weekly fall in a year, on weak economic data and comments by a finance ministry official that yields needed to come down.
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