(ET)
The central bank has promised to conduct a detailed study of the liquidity issues and come up with fresh guidelines on prudential standards. “Pro-active liquidity management is the key to the effectiveness of monetary policy,” RBI said in its annual report.
“In this context, a detailed analysis of the liquidity impact of forex operations would be undertaken,” it said. Even though RBI raises or cuts the policy rate, the liquidity or cash in the banking system clearly weighs interest rate A tighter liquidity will help harden the rates while an adequate to ample liquidity will bring down the same. Higher liquidity is also inflationary, a key factor for the Monetary Policy Committee to frame bi-monthly credit policies.
