RBI is likely to extend the special liquidity facility beyond July 2 to ease unusually tight credit conditions caused by increased cash outflow in 3G and Broadband Wireless Access Spectrum licenses payments and advanced tax outgo, experts said on Friday.
RBI on May 28 had anno-unced the second round of Liquidity Adjustment Facility (LAF) window for banks for up to 0.5 per cent of their deposits, scheduled to expire on July 2.
However, experts opine, RBI, which is also concerned about high inflation, may tinker with interest rates only after it is satisfied with liquidity levels in the system.
“If the RBI’s agenda is to hike rates, they will have to bring in some liquidity in the system before doing so, given the current conditions. In my view, it is likely that they will extend the facility for at least till the July policy,” Development Credit Bank’s associate vice-president, Mr Anoop Verma, said.
Around Rs 1,36,000 crore has gone out of the system over the past few weeks on account of payment by telecom operators for 3G auction, broadband wireless access and payment for advance tax payments.
Banks that can borrow government securities through the repo window, have the statutory requirement of maintaining 25 per cent of their deposits.
However, the RBI has assured that banks can seek waiver on penal interest if they fall short of maintaining the Stautory Liquidity Ratio requirement.
The RBI is expected to hike repo and reverse repo rates at its quarterly review of annual monetary policy on July 27.
Banks have been borrowing from the RBI’s repo window at 5.25 per cent in the range of Rs 50,000-Rs 70,000 crore in the last two weeks. — PTI