Banking system has moved out of the Chakravyuh of excess liquidity: Das
As part of its gradual move towards normalising liquidity and market operations, RBI has now decided to restore market hours for the government securities market to the pre-pandemic timing of 9am to 5pm. Moreover, to further develop the government securities market, RBI proposes to permit lending and borrowing of G-secs.
“This will provide investors with an avenue to deploy their idle securities, enhance portfolio returns and facilitate wider participation. This measure will also add depth and liquidity to the G-sec market; aid efficient price discovery; and work towards a smooth completion of the market borrowing programme of the centre and state,” said Shaktikanta Das, Governor, RBI on Wednesday while revealing decisions and deliberations of the RBI’s Monetary Policy Committee (MPC) meet.
The Reserve Bank will remain flexible and responsive toward meeting the productive requirements of the economy. The weighted average lending rates (WALR) on fresh rupee loans and outstanding loans increased by 137 bps and 80 bps respectively, from May to December 2022. The weighted average domestic term deposit rate on fresh deposits and outstanding deposits increased by 213 bps and 75 bps respectively.
Das added: “We will conduct operations on either side of the LAF, depending on the evolving liquidity conditions. The real policy rate has been nudged into positive territory; the banking system has moved out of the Chakravyuh of excess liquidity; inflation is moderating; and economic growth continues to be resilient.”
Rural demand continues to show signs of improvement as tractor sales and two-wheeler sales expanded in December. Several high-frequency indicators also point towards strengthening of activity. Investment activity continues to gain traction. Non-food bank credit expanded by 16.7 per cent (y-o-y) as on January 27, 2023. The total flow of resources to the commercial sector has increased by ₹20.8 lakh crore during 2022-23 so far as against ₹12.5 lakh crore a year ago. The Indian Rupee has remained one of the least volatile currencies among its Asian peers in the calendar year 2022 and continues to be so this year also. Global software and IT services spending is expected to remain strong in 2023.
Higher rabi acreage, sustained urban demand, improving rural demand, robust credit expansion, gains in consumer and business optimism and the government’s enhanced thrust on capital expenditure and infrastructure in the Union Budget 2023-24 should support economic activity in the coming year. Weak external demand and the uncertain global environment, however, would be a drag on domestic growth prospects.
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