Bankers hope RBI steps will reverse after Re stability

Bankers said on Tuesday the liquidity tightening measures announced by the RBI are temporary and hoped they will be rolled back once the rupee stabilises.

"These measures are temporary, to calm down volatility.

“We are not taking that these measures will be long term. I think once the rupee stabilises, these steps should be largely rolled back," SBI Chairman Pratip Chaudhuri said.

The Reserve Bank on Monday night announced a slew of measures like raising cost of borrowing by banks by 2 per cent to 10.25 per cent and announcing sale of bonds worth Rs 12,000 crore (Rs 120 billion) through open market operations to suck liquidity to check rupee slide.

The rupee had earlier this month touched a life time low of 61.21 to a dollar.

On the impact of RBI measures on interest rates, Chaudhuri said:

"impact on loan growth depends on how long these measures stay.

“Deposit rates do not have such a close correlation with the money market".

RBI's measures strengthened the Rupee to 59.20 against dollar in noon trade, against previous close of 59.89.

"RBI action is towards the forex side of market and to contain volatility in rupee," Bank of Baroda Chairman S S Mundra said, adding it would be too early for RBI to change policy stance.

RBI is scheduled to announce its first quarter monetary policy review on July 30. UCO Bank Chairman Arun Kaul said RBI's step is a temporary measure and the bank has to wait for some more time to decide on the impact of this move.

"The objective of RBI action is to compress liquidity. The implications are same as repo rate hike. RBI has opted for that time which is slack in terms of credit demand," Kaul said.