Shaktikanta Das: Fine-tuning operations to manage unanticipated liquidity

The RBI Governor’s statement comes after US Fed Chairman Jerome Powell last week indicated that the central bank is not in a hurry to raise interest rates. Any delay in hike in rates by the US Fed is expected to result in more foreign investment flows. On its part, the Reserve Bank will endeavour to ensure adequate liquidity in the G-sec market as an integral element of its effort to maintain comfortable liquidity conditions in the system, Das said. “In my monetary policy statement of August 6, 2021, I had set out a roadmap for the gradual restoration of the variable rate reverse repo (VRRR) auction as the main operation under the revised liquidity management framework announced on February 6, 2020,” he said.

In the wake of the pandemic, when fiscal response resulted in a sharp increase in government borrowing, the market operations conducted by Reserve Bank not only ensured non-disruptive implementation of the borrowing programme, but also facilitated the stable and orderly evolution of the yield curve, he said.

On the economy, Das said, “While there are signs of recovery, we are not yet out of the woods.”

He said the sudden shock delivered by the pandemic called for swift and decisive policy responses. Central banks across the globe responded by lowering interest rates, expanding their balance sheets through large-scale purchase of government securities (G-secs) and other assets and injecting vast amounts of liquidity into the financial system, he said.

Many central banks also implemented measures targeting specific market segments that were witnessing heightened stress.