Hike in key interest rates will virtually have no impact on the liquidity scenario, feel bankers. In a bid to control inflationary pressures, the RBI on Friday raised the repo and reverse repo rate by 25 basis points to 5% and 3.50%, respectively.
Advance tax outflows have sucked approximately Rs 40,000-50,000 crore from the banking system. However, bankers believe that the system will still be flushed with ample liquidity. The bankers are also confident that they would be able to meet their credit growth requirements in the next two months.
?There is sufficient liquidity in the system. Moreover, every bank is flushed with adequate liquidity despite credit growth picking up,? explained HSU Kamath, executive director, Canara Bank adding that even after the government borrowing programme calendar is chalked out, there will be no pressure on the liquidity front.
Currently the industry has liquidity close to Rs 70,000 crore, despite the Reserve Bank of India (RBI) sucking out Rs 36,000 crore from the banking system.
Ananth Narayan, MD & head of rates for South Asia financial markets at Standard Chartered Bank pointed out that foreign institutional investors have been pumping in heavily into the economy following the announcement of the Union Budget 2010-11.
?With heavy FII investments into the economy, there is abundant liquidity. At the same time, government spending has added to more than sufficient liquidity,? said Narayan.
The RBI has also made clear that the rate hikes will not impact the liquidity in the banking system. ?As liquidity in the banking system will remain adequate, credit expansion for sustaining the recovery will not be affected,? RBI said.