Written by: The Indian Express
2 min readJul 20, 2013 01:29 AM IST
First published on: Jul 20, 2013 at 01:29 AM IST
The recent measures taken by the RBI to tighten liquidity and strengthen the rupee have created a turmoil in the money market. Bond yields have gone up and the RBI is struggling to sell government securities. In an interview with The Indian Express,NS Venkatesh,Chief General Manager amp; Head Treasury,IDBI Bank,spoke about the impact on the rupee and government borrowings. Excerpts:
Do you think RBI measures like hiking bank rate and tightening liquidity will stabilise the rupee?
I believe that the action taken by RBI was a step in the right direction. The objective was to decrease the quantum of liquidity and increase the cost of short term liquidity,thereby making the carrying cost for funding the speculative activity in the Indian currency market more prohibitive. This,I believe,will be a short-term measure and will have a positive impact of stabilising the rupee.
The RBI hiked short-term rates,but it refused to offer higher yields on Rs 12,000 crore bond auction. How do you read this strategy?
The open market operation OMO was a liquidity management measure and not a yield signalling measure. Hence,the action of the RBI offering G-Secs through OMOs to the extent of Rs 2,500 crore at the then prevailing secondary market yield level needs to be seen in that light.
How will these measures impact the governments borrowings?
Since the RBI step was to increase the cost of short term liquidity in the market,it is not expected to have a large impact on government borrowings. But the short-term borrowing cost may go up as long as the steps continue.
The rupee situation has not improved much. Should the RBI change strategy?
The RBI action has brought stability. The RBI is on the right track and needs to review the steps as soon as rupee stability is achieved on a sustained basis.
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