RBI announces liquidity measures: Here’s what bankers, economists make of it

Mistry said, “I don’t think doing a knee-jerk reaction of cutting rates at such short notice would have made that much sense. To my mind this is right. The governor has said that he is going to review this from time to time and he will do whatever it takes to ensure that the system functions properly.”

On Yes Bank he said, “The message to the Yes Bank depositors is very clear that RBI is right behind it and the central bank will ensure, come what may that the money given by the depositor is not going to be lost and the depositor can feel confident. I think this brings a lot of confidence to the depositors.”

According to Mistry, Yes Bank will come out of this situation a lot stronger.

The governor made two important points, one was reassuring Yes Bank depositors and the other was he was right in emphasizing that state governments and state government agencies should be calm and confident about the health of the banks, whether they are private and public and they should not discriminate at this point of time. If the state government official or state government agencies were to withdraw money from private sector banks it would be disastrous because it could have financial stability implications, said Khan, adding that it would not right time for them to take out the plug and create instability.

Principal economic adviser Sanjeev Sanyal said, “As the governor pointed out clearly that using the long-term refinancing operation (LTRO) to keep the quantitative liquidity in the system as easy as possible is what we have done for now but that doesn’t mean anything else has been ruled out and he was quite clear about that.”

According to Mehta, the extra LTRO may not have immediate impact on the yield curve. “So whether it is on April 3rd or maybe before that, if policy rates are going to change then not much impact of 3 year money at this juncture to be borrowed; we don’t even know whether it’s one or two or 5 year swap but it will help at a margin,” he added.

Speaking about rate cut, Narayan said, “I continue to believe there is a good chance we see a rate action before April 3rd but today’s press conference did bring some doubts to my mind; the fact that he (the governor) seemed a little unsure about the timing and the fact that he also mentioned growth might not be impacted in India that much. He didn’t give a straight answer to dollar-rupee linkage to monetary policy question. So, while I still think he is a dove and wants to do as much as possible for the economy, but the confidence has come down; I still think though the rate action will happen before.”