The liquidity condition in the banking system is comfortable with no signs of stress in the money market, Reserve Bank of India Deputy Governor Subir Gokarn has said.
“We have not for quite some time felt that there was stress in the market both in terms of quantity of LAF (liquidity adjustment facility) borrowing and in terms of behaviour of call rate,” Gokarn told newspersons on the sidelines of a National Finance Symposium, organised by the Indian Institute of Foreign Trade (IIFT) here.
The overall LAF borrowing by banks was well within the RBI’s comfort zone of 1 per cent of net demand and time liabilities, he added.
On whether the RBI was comfortable with the current level of foreign exchange reserves, Gokarn said the apex bank has “never been uncomfortable with the level of reserves”.
“I think the dollar reserve is a strategic resource. It is something that we have to measure against potential short-term liability. That is something we have been benchmarking consistently,” he said.
Gokarn, however, declined to comment on the inflation situation or his expectations. The Government is likely to come up with inflation data for August on September 14.
On rupee movement, he said the local currency had over the last several weeks been relatively stable and that would suggest that there has been more or less a balance between inflows and outflows. “We are obviously monitoring the situation and will react to it as appropriate”.
Earlier, in his opening remarks at the event, Surajit Mitra, Director, IIFT, said there was need for quick and effective banking reforms. He suggested that product innovation (in the financial sector) should be incentivised. He also stressed the need for an effective regulator in insurance.