Indian central bank to assess liquidity for OMO decision

India's central bank will assess the liquidity situation before taking further decisions on open market operations (OMO), a deputy governor aid on Saturday. Liquidity has improved in recent weeks due in part to government spending and the central bank's open market operations, Shymala Gopinath told reporters on the sidelines of a conference.
The Reserve Bank of India said in December that it would conduct OMOs to buy up to 480 billion rupees ($10.59 billion) of bonds to ease the tight cash conditions in the banking system. "480 billion rupees is kind of an upward feeling but even that is indicative," Gopinath said. She said the central bank would decide on whether it needs to do more, or less, open market operations depending on the turnout in the liquidity situation going ahead. "If the government is spending then the liquidity goes back to the market. So we will accordingly calibrate how much OMOs to do."
The Reserve Bank of India has been the most aggressive major central bank in Asia, lifting interest rates six times last year to fight surging prices being spurred by rising food costs in an economy growing at nearly 9 percent. India's food inflation rose for the fifth straight week to the highest in more than a year, reinforcing fears it has spilt over to broader prices and cementing expectations of a January interest rate hike.
"We have seen the inflation and it is not comfortable. It is not something we can say now what we will do and what we will not do," Gopinath said when asked if the central bank could raise interest rates ahead of its policy review on January 25. Gopinath also said the RBI will review India's growth and inflation projections for the year ending March at its upcoming policy review.
The RBI had said earlier it expects WPI inflation to ease to 5.5 percent by the end of the fiscal year in March 2011. Central bank governor Duvvuri Subbarao said on Friday a pause in its tightening cycle should be interpreted as a comma and not a full stop, indicating further monetary policy tightening going ahead.