Thu. Mar 28th, 2024

Amid rising fear of credit crunch, The Reserve Bank of India on Thursday relaxed the mandatory cash requirement levied on the banks as it would induce “durable liquidity” in the jittery market.

Recently the attempts of government and market regulator against liquidity fears spread due to debt-ridden IL&FS were proven inadequate leaving the market in negative.

Earlier to this, the apex bank to soothe the investors relaxed liquidity coverage ratio norms. This permitted the bank to keep adding 2% more government securities in their statutory liquidity ratio reserves.

The currency markets and the bonds were boosted by the announcement of the relaxation coupled with a hike in customs duty.

According to the investors, the effect is not likely to be seen in the short term. Although, dealers are expecting an announcement related to open market purchase of bonds by RBI in the near future.

The 10-year benchmark yield fell 2bps from 8.07% whereas, the Indian currency maintained at 72.45 against a dollar.

Currently, it is compulsory for Indian banks to purchase government securities equivalent to 19.5% of their deposit in order to maintain the statutory liquidity ratio.

While pointing to the liquidity coverage ratio, RBI in a separate mandate said “This … will help improve the distribution of liquidity in the financial system as a whole”.

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