Reserve Bank on Monday said the liquidity situation currently is comfortable and indicated that monetary policy action in the forthcoming mid-quarterly review next week would depend on latest developments in the money market.

“For the last several weeks liquidity levels have been within our comfort zone (but) we monitor this on a daily basis”, Reserve Bank Deputy Governor Subir Gokarn told reporters on the sidelines of a function here.

RBI, he added, would take note of emergence of “signs of stress, particularly if they are likely to be persistent”, but that “there are no signs of stress at the moment”.

The central bank, in its mid-quarterly review of monetary policy to be announced on September 17, is expected to take steps to promote growth and also contain inflationary expectations. The RBI is also expected to respond to some bankers’ demand for abolition of Cash Reserve Ratio (CRR), the amount of money which banks are required to keep with the central bank in cash.

Answering questions on inflation and its impact on the forthcoming policy review, Gokarn said: “I don’t have expectations. I don’t cite expectations. We will look at the data when it comes“.

The government is likely to come up with the August inflation data on September 14. The wholesale price based-inflation in July slipped to 6.87 per cent from 7.25 per cent in the previous month.

The Reserve Bank has been taking Open Market Operations (OMO) to pump in liquidity into the market by buying government bonds. The OMO, which is easy to implement, only has short term implications on the liquidity situation.

The CRR cut is more significant as it has lasting impact on the liquidity situation, sources said, adding the central bank would have to take into account various other factors, including the need for liquidity, before announcing any changes.

On currency fluctuation, Gokarn said: “Over the last several weeks, the currency has been relatively stable (as) there is a rough balance between inflows and outflows. We are monitoring the situation and will react to it as appropriate.”

The central bank had intervened in the foreign currency markets and taken administrative steps to check volatility in rupee-dollar exchange rates. As regards India’s foreign currency reserves, Mr Gokarn said, “it’s something that we have to measure against the potential short-term liability. That’s something we have been benchmarking consistently and we have never been uncomfortable with the level of reserves which we had”.

Mr Gokarn added that “intervention in forex market has been one component of our approach to the exchange rate. Others have been in terms of some administrative actions which we took and in fact have rolled back some of those because we felt they were adding some stress or difficulty to the market and to the liquidity”. The third component, he said, “was to expand the channel available to foreign investors”.

On the impact of the European Central Bank’s (ECB) decision to buy unlimited sovereign bonds to save Euro, Mr Gokarn said it would bring “some comfort to the investors across the board. We saw some of that in the immediate aftermath of the announcement and I suspect that is the way it will play out”.

Besides ensuring liquidity in the markets, he said, the ECB decision would provide assurance that the European bond markets would remain very stable.

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