As Coronavirus variant Omicron’s threat rises just days before the Reserve Bank of India’s (RBI) monetary policy committee meeting scheduled between December 8 and 10, 2021, State Bank of India’s (SBI) economists have suggested delaying liquidity normalisation measures via reverse repo hike, thus indirectly seeking a status quo on key rates.
The committee will announce its decision on repo and reverse repo rates on December 10, the last day of the meeting.
SBI economists said that such a “prudent” measure in the prevailing situation, will give more legroom for economic recovery.
RBI has been removing excess liquidity through other measures so far, which has resulted in liquidity surplus massively being brought drastically in the recent months, SBI Research said in a note.
It noted that the use of the reverse repo tool need not be limited to the monetary policy announcement alone.
SBI Group’s chief economic adviser Soumya Kanti Ghosh said in a weekend note that with the situation still evolving, a status quo on reverse repo rates may be maintained during the policy announcement scheduled later this week.
This is keeping in mind that the effective rate has already been pushed up with VRRRs (variable reverse repo repurchases) and the amount and tenor of the same can be fine-tuned for the desired outcome, he added.
Also, there has been calibrated progress towards liquidity normalisation since the October policy with the amount parked in overnight fixed reverse repo declining to Rs 2.6 lakh crore from Rs 3.4 lakh crore at pre-October policy.