Liquidity management on top of RBI`s agenda

Liquidity management is expected to top the agenda in the first quarter review of the monetary policy by the Reserve Bank of India (RBI) tomorrow.

The immediate task at hand for the RBI would be to convey whether it is still in the tight monetary policy mode, irrespective of an extended pause in interest rate increases.

Flush liquidity, apart from softening short-term money market rates, poses inflationary risks and also threatens to push credit growth back towards the peak of around 30 per cent witnessed in the previous three years.

The liquidity has been largely on account of the RBI’s purchases of dollars from the market to check the rupee’s sharp rise. Though foreign fund inflows into equities have remained strong, overseas borrowings and foreign direct investment have equally contributed to a glut in inflows.

Read more at Business Standard

Liquidity crunch to end in few days: FM

Finance Minister P Chidambaram today said the current liquidity tightening is mainly due to advance tax payments and it will ease in few days as departments spend money.

"Liquidity (tightness) is mainly due to advance tax payments, it will be alright in few days as the ministries, departments start spending money," Chidambaram said on the sidelines of the release of a report by UNEFCAP. The government has collected around Rs 40,000 crore in advance tax payments in the last quarter ended March 15.