We had rightly predicted that RBI would take liquidity easing measures in our weekly fixed income market analysis “High ICDR will force RBI to roll back liquidity measures before 29th October Policy“on 29th September 2013 .
RBI is likely to further cut the MSF rate to 8.50% on 29th October and ease restrictions on bank borrowing in the LAF (Liquidity Adjustment Facility). The short end of the yield curve will benefit from the RBI measures.
RBI cuts MSF Rate
RBI has started a calibrated withdrawal of exceptional measures undertaken to curb rupee volatility in July 2013 from mid quarter review of September 2013.It is continued in October also.
To improve liquidity conditions RBI has reduced the marginal standing facility (MSF) rate by a further 50 basis points from 9.5 per cent to 9.0 per cent on 7th Octber 2013.RBI is providing additional liquidity through term repos of 7-day and 14-day tenor for a notified amount equivalent to 0.25 per cent of net demand and time liabilities (NDTL) of the banking system through variable rate auctions on every Friday beginning October 11, 2013.