RBI Governor Urjit Patel may stand pat on Wednesday as it seeks anchor inflation at 4 percent on a sustainable basis.
Indian central bank governor Urjit Patel is unlikely to cut interest rates on Wednesday to tackle a growth slowdown — excess liquidity in the banking system is already doing the job for him.

The Reserve Bank of India is still grappling with more than $60 billion in excess liquidity after the government’s crackdown on high-denomination notes last year, even after raising the reverse repurchase rate in April and deploying an array of instruments to soak up the funds. With growth at the slowest pace in two years, inflation at a record low and loan demand the weakest since at least 1992, that liquidity is coming in handy.

The weight average of the call money rate, the level at which banks lend to one another on an overnight basis, has been about 6 percent this year, lower than the RBI’s 6.25 percent benchmark repurchase rate. That’s equivalent to a reduction in borrowing costs, according to SBI Funds Management Pvt.

“The RBI hasn’t been very aggressive in taking liquidity out from the banking system and if the liquidity is going to be like this, then it means they are fine with overnight settings meaningfully lower than the policy rates,” said Rajeev Radhakrishnan, Mumbai-based head of fixed income at SBI Funds, a unit of India’s largest lender. “If your overnight rate is lower than the policy rate for a long time, that’s an indirect easing.’’

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