"The aggregate objective of OMOs is to put in a certain amount of liquidity into the market and not help the government borrowings," Gokarn said, talking to reporters at a global investor summit organised by HSBC here this morning. "The choice of securities is driven by the need to be reasonably certain about achieving the aggregate number. So these are two separate decisions. Reality of the situation is OMO is driven by liquidity shortage, not by the government borrowing," he said.
"These are really two separate discussions. You can call it private placement or quasi private placement, regardless of what the mix of securities is. It doesn`t matter, but that`s not the case," he said in response to a query if OMOs are not a kind of quasi-private placements aimed at helping government bond yields.
Speaking to a business channel separately, Gokarn also ruled out any room for aggressive rate cuts as in 2008 following the fall of the Lehman Brothers, given high commodity prices and sticky inflation, though he admitted that easing of interest rates is the next logical step for the central bank against the backdrop of a growth slowdown as well as lessening inflationary pressure.
"That sort of room for very aggressive and very rapid rate cuts simply does not exist in today`s situation. The behaviour of commodity prices is and remains a risk to our inflation and growth outlook. Let`s wait and watch and see how the situation stabilises. There are still risks out there which may not be out of the system and we will take a judgement based on the overall sense of stability and return to normalcy," he said.
Gokarn further said the existing restrictions on speculative trading in the foreign exchange market will stay in place for now, though the rupee has gained massively from its historic low of 54.30 on December 15. The central bank has undertaken nearly Rs 78,000 crore worth of OMOs in the recent months as the system was quite starved of funds, with the banks` daily borrowing from the central bank`s special borrowing window averaging nearly double the 1 per cent liquidity deficit that the bank is comfortable with.