Page 9 - Banking Finance January 2024

RBI CORNER

RBI tweaks ecosystem to assessment. It is quite obvious [with] mediate monetary support by way of
the growth that India has achieved in policy rate cuts as the RBI remains
ease market liquidity
the first half of the year and the two gung-ho on India's growth story and
RBI move to allow banks more flexibil- months of the current quarter. HFIs confident about the disinflation path.
ity in managing funds over weekends (high frequency indicators) are show-
and on holidays will help smoothen the ing good momentum so this upward RBI permits lending, bor-
functioning of the money market and revision is well spaced," Seth said. rowing in government se-
in reducing cost, according to traders.
"But stickiness is there. The policy goal curities
The central bank governor Shaktikanta (on inflation) is 4%, plus or minus 2%.
Das, while announcing RBI's monetary We are some distance away from In a bid deepen the bond market, Re-
serve Bank of India issued guidelines for
policy review said it will allow banks to [achieving] 4%. Whatever supply-side
move and borrow between the stand- measures have to be taken for food lending and borrowing in government
securities. A wellfunctioning market
ing deposit facility (SDF) and marginal
products will continue to be taken," for securities lending and borrowing
standing facility (MSF) during weekends
Seth added. will add depth and liquidity to the Gov-
and holidays from 30 December. This ernment Securities (G-Sec) market,
will be reviewed after six months.
RBI leaves repo rate un- aiding efficient price discovery.
"With regard to the standing facilities In February, the central bank had come
of the Reserve Bank under the LAF, we changed at 6.5%, stance of
out with the draft RBI (Government
have noticed simultaneous high "withdrawal of accommo- Securities Lending) Directions, 2023 and
utilisation of both MSF and SDF by the based on the comments received on the
banks. This was pointed out in the last dation" retained draft, the directions have been finalised,
monetary policy statement. We pro- The Monetary Policy Committee according to a notification.
pose to address this situation and have (MPC), in a unanimous vote, has main- G-Secs issued by the central govern-
decided to allow reversal of liquidity tained a status quo on policy rates, the ment, excluding Treasury Bills, would
facilities under both SDF and MSF even fifth in a row. The last hike in the Repo be eligible for lending/borrowing under
during weekends and holidays with ef- Rate came 10 months back on Febru- a Government Security Lending (GSL)
fect from 30 December 2023," said ary 8, 2023. With a 5:1 vote, the policy transaction.
RBI. stance is retained as 'withdrawal of
accommodation'. The securities obtained under a repo
Govt agrees with RBI's The MPC's growth-inflation forecasts transaction, including through RBI's Li-
quidity Adjustment Facility or borrowed
raised growth estimates put forth a merry growth story for In- under another GSL transaction would
The government concurs with the dia. India's GDP is seen to clock a 7.0% also be eligible to be lent under a GSL
RBI's decision to revise India's FY24 growth, 0.5% higher than October transaction, as per the notification.
economic-growth estimate to 7% as forecasts. This upward revision comes Further, it said that G-Secs, including
the country has achieved high growth against the backdrop of improved T-Bills and state government bonds,
during the first two quarters of the fis- growth prospects that the MPC sees would be eligible for placing as collat-
cal, Ajay Seth, secretary of the depart- persisting through the next one year. eral under a GSL transaction.
ment of economic affairs, said. The growth outlook in the wake of As regards maturity, RBI said the mini-
Seth said despite recording high ongoing disinflation is building up the mum tenor of a GSL transaction would
growth in the first two quarters, the case of a 'goldilocks' like scenario for be one day and the maximum would
Indian economy still faces stickiness on India in 2024, while the MPC remains be the maximum period prescribed to
inflation and supply-side measures will watchful on the food-led price shocks. cover short sales.
continue to be taken to keep food The growth-inflation outlook laid out at The lending and borrowing of G-Secs
prices in check. the MPC indicates that the economic are expected to augment the existing
"Certainly, we agree with the RBI's activity may not exactly need any im- market for 'special repos'.

8 | 2024 | JANUARY | BANKING FINANCE