India's central bank to use cash reserve ratio as active liquidity tool
[MUMBAI] India's central bank plans to use the cash reserve ratio (CRR) more frequently to manage liquidity and aid policy transmission, rather than deploying it only during extreme cash swings, a source told Reuters on Wednesday (Jun 11).
The person aware of the Reserve Bank of India's thinking declined to be identified because they are not authorised to speak to the media. The RBI did not reply to an email seeking comment.
The central bank last week announced a surprise 100-basis-points reduction in CRR, the portion of deposits banks must park with the RBI, in four equal tranches, taking take it down to 3 per cent.
The move will release US$29.25 billion into the banking system.
RBI governor Sanjay Malhotra had then said that the regulator was 'comfortable' with a 3 per cent CRR, but did not give other details.
With banks' total deposit base having grown in recent years, the need to maintain the CRR at a minimum of 4 per cent to manage crisis situations is no longer seen as necessary, the source said.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
'CRR is a good tool to have from a liquidity management perspective and the scope goes beyond just an emergency tool, it will be used more often from now,' the person said, adding that the ratio could also be raised to absorb a large liquidity influx caused by sustained foreign inflows and is more efficient than conducting multiple open market operations.
Between December and May, the RBI injected nearly US$100 billion into the banking system via OMOs and FX swaps, its largest such infusion over a similar period.
A shift toward managing liquidity via CRR, previously unreported, could reduce the need for bond buys that often distort market yields.
A large cash surplus in the banking system had also pushed the weighted average overnight call rate – the operative policy rate – well below the RBI's key repo rate, currently at 5.5 per cent.
'The RBI wants the overnight call rate to be around the repo rate, steps will be taken to ensure that happens,' the source said, adding that the RBI could start conducting variable rate reverse repo auctions to suck out surplus liquidity as and when required.
The source also said the central bank was uncomfortable with the 10-year benchmark yield falling significantly below existing levels.
The RBI is currently in the process of drafting a revised liquidity management framework, and existing operations will continue until the new framework is finalised, the source said. REUTERS
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Times
an hour ago
- Business Times
Temasek joins Microsoft, BlackRock and MGX to develop AI infrastructure
[SINGAPORE] Temasek has joined a consortium backed by Microsoft, BlackRock and tech investment company MGX to invest and expand artificial intelligence infrastructure, according to BlackRock's investor day presentation slides on Thursday (Jun 12). The Singapore state investment company has joined AI Infrastructure Partnership, a group that also includes BlackRock's Global Infrastructure Partners, the slides showed. AIP, formed in September with a goal to initially invest more than US$30 billion in AI-related projects, is one of the world's largest efforts to invest in data centres and energy facilities needed to power AI applications such as ChatGPT. It aims to mobilise up to US$100 billion including debt financing for such investments, which will focus on the United States. Temasek's participation comes after the Kuwait Investment Authority joined AIP earlier in June. The sovereign wealth fund of Kuwait was the first non-founder financial anchor investor to join the consortium, which also counts partners including Nvidia and billionaire Elon Musk's xAI. 'Temasek's investment in the AI Infrastructure Partnership reflects our focus on the big shifts and trends of the future,' Ravi Lambah, Temasek's head of strategic initiatives, said in an email to Reuters. 'AI is potentially the most transformative and impactful technology for all sectors and businesses,' he added. Temasek did not disclose financial details of the investment. The global investment company had a net portfolio value of S$389 billion as of March 31, 2024, according to its website. REUTERS
Straits Times
an hour ago
- Straits Times
Italy says it needs at least 10 years to raise defence spending
Italian Foreign Minister Antonio Tajani attends a joint press conference, on the day of a meeting to discuss the latest developments in Ukraine and security in Europe, at Villa Madama in Rome, Italy, June 12, 2025. REUTERS/Guglielmo Mangiapane Italy says it needs at least 10 years to raise defence spending ROME - Italy's Foreign Minister Antonio Tajani on Thursday said his country needs at least 10 years to raise defence spending and comply with new targets due to be agreed by NATO, adding that a deal on them could soon be reached. Italy is one of the defence spending laggards within the Western military alliance, having spent just 1.49% of gross domestic product last year against a current target of 2%, according to NATO data. Rome has said it would respect the 2% target in 2025, but mainly through a series of accounting changes which add to defence budget calculations items that were previously not included. "I believe that we can do good work with NATO and arrive at The Hague summit with an agreement ready beforehand, so that NATO can demonstrate its unity," Tajani said speaking alongside NATO Secretary General Mark Rutte. The alliance leaders will meet in The Hague on June 24-25. Defence Minister Guido Crosetto, speaking in parliament, said it "is not possible" for Italy to meet U.S. requests for NATO allies to hike their defence budgets to 5% of GDP, and said an intermediate target of 3.5% "is not easy". Italy has limited room for spending, with its massive public debt projected to rise to almost 138% of GDP in 2026 before edging down the following year. "We are maintaining a conservative stance on the matter because we do not want other key investments, such as those on public health or social spending, to be affected", Crosetto said, adding that every government within NATO would need to discuss defence spending commitments with national parliaments. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
Straits Times
2 hours ago
- Straits Times
Australia to boost aerial surveillance of Pacific for illegal fishing fleets
FILE PHOTO: An Australian flag is pictured at its embassy in Beijing, China January 24, 2019. REUTERS/Jason Lee/File photo SYDNEY - Australia plans to significantly boost surveillance of Pacific Islands territorial waters, spending A$477 million ($310.72 million) on aerial patrols for illegal fishing fleets, tender documents viewed by Reuters show, as China takes steps towards sending its coast guard to the region. Australia's Prime Minister Anthony Albanese will visit Fiji on Friday, the Fiji Times newspaper reported, after the government of Prime Minister Sitiveni Rabuka last week approved a maritime security agreement that will see Australia fund a patrol boat for Fiji. Australia will operate commercial aerial patrols to support Pacific Island countries monitoring exclusive economic zones which span millions of kilometres of ocean. Efforts to tackle illegal fishing also led to a new monitoring centre being opened in Fiji in April. Australia's defence department declined to comment on the aerial tender, and Pacific Minister Pat Conroy did not respond to a request for comment. Reuters reported last week that China's coast guard is taking further steps towards high seas boarding of fishing boats in the Pacific for the first time, risking tensions with Taiwanese fleets that also ply the region. The Chinese Coast Guard demonstrated the capabilities of one of its largest ships, used to enforce maritime law in the Taiwan Strait, to 10 Pacific Island ministers, including Fiji's, in China a fortnight ago. China has registered 26 coast guard vessels for Pacific Ocean patrols with the Western and Central Pacific Fisheries Commission, although it is yet to conduct an inspection, WCPFC officials said. China declined to comment. Australia has gifted two dozen patrol boats to Pacific Island nations, and operates navy and air force patrols for illegal fishing in the region several times a year. Sangaa Clark, chief executive of the Parties to the Nauru Agreement, representing nine Pacific Island countries controlling the world's largest tuna fishery, said the group has not invited China to conduct coast guard patrols, and instead relied on Australian-funded surveillance and patrols by Australia, New Zealand, France and the United States. Pacific security expert Peter Connolly, a fellow at the University of New South Wales, said Chinese Coast Guard patrols in the region would "introduce geostrategic tensions to the policing of the Pacific's fisheries". "This is particularly likely because the two most common nationalities of illegal fishermen in the Pacific have been from the PRC and from Taiwan," he said, referring to the People's Republic of China. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
