Subir Gokarn, deputy governor of the Reserve Bank of India, comments on a cash shortfall in the banking system and crude oil prices. He spoke to reporters in Mumbai.
“One way of tracking liquidity pressure is the behavior of the call rate. If the call rate is maybe 20 to 25 basis points above the repurchase rate, which is typically the scenario when liquidity conditions are normal, market conditions are orderly.
‘‘Even though the deficit may be larger than our comfort zone, there is no instability in the market.
‘‘We are seeing call rates at around 8.9 percent or so, which suggests that there are some pressures. Overall, while the quantum of liquidity deficit is large, the behavior of prices does suggest that things are relatively stable.
‘‘There has been a concerted effort to put money. The market’s absorption capacity has to be taken into account. That’s the balancing act that we are trying to do.
‘‘That doesn’t mean that we write off the problem. The problem still exists and we need to address it. But we’ll address it in ways that aren’t destabilizing and create other problems somewhere else.’’
On oil prices and the economy:
‘‘Oil prices going up clearly poses the potential of upside risk to inflation. On the other hand, with growth having slowed somewhat, whether these higher input prices can be automatically passed to consumers, is a question. It is likely that producers don’t have as much pricing power.’’
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