OMO not for bond yield control: RBI

Written by Press Trust of India | Mumbai | Updated: Jan 28 2011, 05:39am hrs
The Reserve Bank of India (RBI) on Thursday said that Open Market Operations (OMO) in the bond market is more a monetary policy tool and not a debt management instrument.

OMO is not being used to influence bond yields. OMO is done in a more enduring manner and not to influence the yield curves, said RBI deputy governor Subir Gokarn on Thursday.

On the statutory liquidity ratio (SLR) now at 24%, the RBI deputy governor said the apex bank feels that there is no need to tinker with it.

SLR is the amount of liquid assets, such as cash, precious metals or other short-term securities, that a financial institution must maintain in its reserves.

On RBI's concern over the abnormal incremental credit-deposit ratio, Gokarn said the deposit mobilisation by banks is beginning to catch up. There is still a wedge though the catching up is going on, he said.

The RBI is sending the message to banks that they can't borrow overnight and lend, he said. In a liquidity-deficit situation such as the one prevailing presently, banks have an incentive to raise deposits. Deposits mobilisation is becoming a motivation (for banks) as liquidity is deficit, he said.