MUMBAI: The Reserve Bank of India will continue to drain surplus liquidity from the banking system gradually without destabilising the market, Deputy Governor Viral Acharya said after the central bank's monetary policy meeting on Wednesday.
The central bank has been mopping up excess liquidity from the market using cash management bills and open market sale of bonds since a shock ban of high value notes by Prime Minister Narendra Modi left banks flush with cash.
"We remain in touch with the government to make our tool kit for this task more complete," Acharya said. "In the meantime, we will continue with surplus liquidity management using instruments indicated in the April policy. Our intent is not to actually destabilise or shock the market in any way," he added.
The Reserve Bank of India cut its policy rate on Wednesday by 25 basis points to 6 per cent, the lowest since November 2010, as slumping inflation allowed the central bank to focus on boosting an economy growing at the slowest pace in over two years.
The Reserve Bank of India is comfortable with interest rates being slightly higher than its stated preference of having a difference between the repo rate and the inflation target of 1.75 percent, Deputy Governor Viral Acharya said.
The difference now stands at 2 percent, after the RBI cut the repo rate by 25 basis points to 6 per cent, above the central bank's inflation target of 4 percent. "I think we are just slightly outside of the range of 1.75 per cent and we are comfortable with that," Acharya said.