India cbank deputy says liquidity deficit within comfort zone

Last Updated: Sat, Dec 08, 2012 18:50 hrs

KOLKATA, Dec 7 (Reuters) - The Indian banking system liquidity deficit is within comfort zone and the central bank will take more steps to address the deficit if needed, the Reserve Bank of India Deputy Governor Subir Gokarn said on Friday.

"An OMO (open market operation) gives us the flexibility to respond in very short order to stresses," Gokarn told reporters on the sidelines of an industry event.

"So, if we see them remaining in the system, then obviously we have the capacity to respond to them," he said referring to the liquidity stress.

Last week, the RBI resumed bond purchases through the open market after a span of five months to offset the impact of expected cash outflows as corporates start paying taxes ahead of the Dec. 15 deadline.

The banking system's liquidity shortage has stayed above the central bank's stated comfort zone since the middle of last month due to festive season withdrawal of funds from banks and the slow pace of government spending.

Banks borrowed over a trillion rupees for 11 consecutive sessions last month, compared with RBI's comfort zone of about 700 billion rupees ($12.89 billion).

($1=54.3 rupees)

(Reporting by Shamik Paul; Editing by Prateek Chatterjee)

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