RBI Governor has always proved his abilities with regard to managing various key issues like rupee volatility, liquidity management & taking timely rate action tracking growth and inflation dynamics.
????Rupee Volatility: RBI Governor has mentioned several times regarding its intervention in forex market is intended to manage volatility and not to defend a level. We saw the recent movement on rupee against DXY which has cleared all doubts where Dollar Index (DXY) fell around 5% but Rupee (₹) remained stable.
????Timely Rate Actions: RBI governor was criticized by many for being behind the curve, but actually he was not. He was simply thoughtful as rate action is a very big decision and it has immediate impact on the economy. So, he followed the approach to go slow and waited for data and input to take further action on rates to avoid being on wrong footing.
His approach worked and he has successfully managed inflation. As we all understand the pain in the food basket, to manage food inflation, he maintained liquidity in deficit to keep short term rates elevated. It was not wise to keep raising rates beyond a level that could start haunting the economy in terms of lowering growth that was just recovered from Covid. Today, if we look at the growth (GDP) & Inflation numbers, both looks quite promising!
????Liquidity Management: This has been the most challenging task for the RBI. It has taken few steps like I-CRR, which didn’t go well up to their expectations.
Recently, When RBI found SDF/MSF volume of both increasing simultaneously that indicate the situation of skewed liquidity distribution which RBI always avoided to have. In the previous policy meeting, RBI has made a small announcement but It was very crucial one where in it allows reversal of liquidity facilities under both SDF and MSF even during weekends and holidays with effect from December 30, 2023. This measure will help banks to manage their fund position better. The measure will be reviewed after six months or earlier, if needed.
Let’s see the Impact of this measure⬇
We have been looking at deficit in LAF i.e, MSF being higher than SDF (excluding any other operations LTRO/TLTRO/VRR/VRRR etc). Immediately after implementation of this new rule net liquidity (MSF-SDF) came into surplus i.e. MSF volume came lower(₹31,351Cr) v/s SDF Volume(₹42,844Cr) as banks are being able to utilize this facility. Hence, it has served its purpose without providing any additional liquidity into the banking system.
Overall Net Liquidity happens to be in deficit as liquidity is provided through VRR, thereby increasing borrowing amount. RBI is comfortable with liquidity deficit as it supports to provide liquidity to borrowers, not to depositors. I believe, RBI will continue with its stance of maintaining liquidity in deficit till we see inflation including food inflation to stay lower on a sustainable basis.
So, I personally feel RBI has managed all its task very efficiently and no wonder why our RBI Governor receives the “Central Banker of the Year Award for the Year -2023.
