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  • RBI says potential liquidity available in the system

    Published on November 23, 2010

    In the wake of recent concerns over a liquidity crunch in the system, Reserve Bank of India Deputy Governor, Shyamala Gopinath, has said there is a “potential liquidity” available in the system.

    The central bank’s recent liquidity infusion moves like the second LAF (Liquidity Adjustment Facility) and the second one percent below SLR (Statutory Liquidity Ratio) have given confidence to market participants, she said.

    “That has given a lot of confidence to them…there is so much more potential liquidity in the system,” Gopinath said, speaking on the sidelines of the launch of interbank mobile payment service in Mumbai on Monday.

    When pointed out that banks are drawing over Rs one trillion everyday for around a month from the Reserve Bank as compared to the usual Rs 700 billion and are not using the SLR facility, she said, “if they have not drawn from the one per cent SLR as you say, it means that there is potential liquidity available in the system for the banks to draw if they require it.”

    Gopinath further said that the RBI has been monitoring the liquidity situation.

    RBI Deputy Governor, Subir Gokarn, had recently indicated the central bank is concerned over the excess deficit in liquidity, which has crossed the Rs 50,000 crore comfort zone which it has set for itself.

    There’s no easy replacement for dollar: Subbarao

    Reserve Bank Governor Duvvuri Subbarao has opined that there is no easy replacement for the American dollar as the global reserve currency.

    “It is not easy to replace the US dollar as the global reserve currency because of the sheer size of the American economy and its dominant share in global trade”, the Governor said at the launch of a book entitled ‘Global Crisis, Recession and Uneven Recovery’ by former RBI Governor Yaga Venugopal Reddy in Mumbai on Monday.

    Admitting that the emerging economies in particular and all those economies which have the American greenback as their reserve currency, are suffering from currency volatilities, he said, such a singular dependence on a single currency is creating many a vulnerability to these economies in particular and the global economy and its still fragile recovery in general.

    The American unit has been steeply falling for quite some time now against all the major global currencies–the euro, pound and yen.

    Even the rupee has been steadily appreciating against the US unit for many a month, even though the euro and yen have gained much more than the rupee.

    Since this September alone, the rupee has gained more than 5 percent against the dollar as the RBI has been keeping off the forex markets for the 18th month in a row.

    While this has helped importers, exporters, especially those from software side, have been hit badly because over two-thirds of their revenues come from the dollar-driven markets.

    On the global recovery that is fragile and uneven, Subbarao said, the current recovery is led by the demand from the emerging economies but added that they alone cannot pull the global economy out of the current crisis, as they still control less than half of the global trade and output.

    Noting that the coupling between the emerging and advanced economies are so strong, Subbarao said, “the future of the emerging economies are firmly linked to the future of advanced economies.”

    The Governor also warned that the advanced economies may impose trade and other barriers if their recovery continue to be slow and painful.

    ‘Global Crisis, Recession and Uneven Recovery’ is the second book by the former RBI governor, who has been hailed for his strict monetary management and firm approach to maintaining the autonomy of the central bank and is a sequel to his first book titled ‘India and the Global Financial Crisis: Managing Money and Finance.

    Appreciating the role his predecessor (Reddy, who was the governor from September 2003 to September 2008) played, Subbarao said, the country could weather the 2008-09 financial crisis because of the strong policies and regulatory systems Reddy had put in place during his stint at the Mint Road.