As the threat of the Coronavirus variant Omicron mounts just days before the Reserve Bank of India (RBI) monetary policy committee meeting scheduled for December 8-10, 2021, the economists at the State Bank of India (SBI) have proposed to postpone liquidity normalization measures through a reverse repo increase, thus indirectly aiming for 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 such a “cautious” measure will give more legroom for economic recovery in the current situation.
RBI has so far removed excess liquidity through other measures, leading to a massive surge in excess liquidity in recent months, SBI Research said in a note.
It noted that the use of the reverse repo tool need not be limited to just announcing monetary policy.
Soumya Kanti Ghosh, SBI Group’s chief economic adviser, said in a weekend note that as the situation continues to evolve, a status quo on reverse repo rates could be maintained during the policy announcement scheduled for later this week.
This keeps in mind that effective interest rates have already been pushed up with VRRRs (variable reverse repurchase repurchases) and their amount and maturity can be adjusted for the desired outcome, he added.
Calibrated progress has also been made towards liquidity normalization since the October policy where the amount parked in an overnight fixed reverse repo has fallen to Rs 2.6 lakh crore from Rs 3.4 lakh crore at the policy from before October.