RBI Introduces Temp. Measures to Increase Liquidity

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May 27 – The Reserve Bank of India raised the rate under which banks can borrow from the central institution on Wednesday to 0.5 percent of deposits as it looks to create more liquidity in the market. This comes in anticipation of mid-June advance taxes and the more than US$20 billion in payments by telecom companies following the recent 3G spectrum auction.

The measures, which will be available from May 28 to July 2, were released via an emailed statement from the central bank on Wednesday and also confirmed that banks could seek to waive penalties accrued for not maintaining the minimum amount of securities under the Statutory Liquidity Ratio.

“The latest assessment of liquidity conditions suggests that there could be temporary liquidity pressures in the market largely due to changes in government balances on account of advance tax payments and 3G auctions,” the Reserve Bank of India said in the statement.

“For any shortfall in maintenance of statutory liquidity ratio arising out of availment of this facility, banks may seek waiver of penal interest purely as an ad hoc, temporary measure. This facility will be available till July2, 2010,” the RBI also stated.