ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

LiquiditySubscribe to Liquidity

Price Risk of Central Government Securities in India

The study examines the determinants of price risk of the central government securities in India using their daily trading data comprising of 81,384 observations during the period 2011 to 2020. The study finds that the high coupon bonds witness a moderate rise in prices compared to lower coupon...

PM-KISAN and the Adoption of Modern Agricultural Technologies

The Pradhan Mantri Kisan Samman Nidhi scheme aims to provide income support to farmers for easing their liquidity needs to facilitate timely access to inputs. This study, based on 1,406 farmers of Uttar Pradesh, uses a binary choice model to examine the targeting accuracy and correlates of the spending pattern of farmers. Triple difference with matching estimators is used to identify the differential impact of the scheme on the Krishi Vigyan Kendra beneficiaries. Results show that the scheme reached one-third farmers in the first three months of its implementation, and has significantly helped those who are relatively more dependent on agriculture and have poor access to credit. Moreover, the scheme has significantly stimulated the Krishi Vigyan Kendra's impact on the adoption of modern cultivars.

India’s Slowdown

Investments in industry have slowed down considerably in the recent years, as has agricultural growth. Falling levels of capacity utilisation, building up of food stocks and the state of liquidity in the economy sufficiently prove that the problem today is the lack of demand. Rural distress, rising inequality and falling real wages are driving down demand. The government’s response to the slowdown has been woefully inadequate. The biggest impediment to policymaking is not the lack of ideas, but the blinkered vision of economics.

RBI’s Interest Rate Policy and Durable Liquidity Question

The Reserve Bank of India should take into consideration longer term liquidity management for smooth monetary transmission. It must clearly define “durable liquidity” in the form of some quantitative variable and set its desired path for one year or so. This will anchor expectations on future interest rate and liquidity premium, and certainly improve the link between the interest rates in various terms to maturity. Moreover, the desired target for durable liquidity can also serve to improve overall monetary policy effectiveness.

Determinants of Bid-ask Spread in the Indian Government Securities Market

Liquidity measurement in financial markets has generated considerable attention in financial research. In this paper, the cost of liquidity is measured by computing the bid-ask spreads of liquid securities traded in the Indian government securities market, and is analysed with other liquidity measures. Overall, volatility is found to be the key variable impacting bid-ask spreads. Trading volume has a negative impact on spreads, although at a much smaller magnitude. Trade initiation and net liquidity appear to be smaller but significant drivers of spreads. Order imbalance and trade execution variables, analysed separately with the other variables, show divergent relationship with spreads.

Strange and Worrying International Market Liquidity

There seems to be a rise in illusory liquidity in international markets, which appears to be plentiful in quiet times, but vanishes at other times. “Flash crashes” are more frequent. Reforms that have made banks safer have contributed to this, leading to a withdrawal of short-term market participants, and causing long-term investors to act short term. There seems to be a trade-off between day-to-day liquidity and what I call “systemic liquidity.”

Delinking Housing Cycles, Banking Crises, and Recession

The nexus of housing boom-busts, banking crises, and economic cycles is not unique to the last crisis and has been increasingly present in each of the major banking crises since the break-up of Bretton Woods in the early 1970s. Housing is a politically charged issue. A safer housing market, via planned fiscal intervention to steady supply, would do more to make the financial system safer than all of the other recent initiatives put together. Cheaper finance without cheaper homes only deepens housing inequality.

Growth vs Inflation Control

The reduction in the Bank rate and in the cash reserve ratio effected in the latest credit policy statement may appear small, but what is significant is the signal conveyed to the market that the policy of supporting investment by providing adequate liquidity and a softer interest rate environment will continue.

Is There a Case for an Asian Bond Fund?

While there has been a tendency to over-sell the merits of the Asian Bond Fund in some circles, the proposal ought to facilitate the diversification of the region's external financing from quantity-based bank lending to price-based bond financing and should also help reduce the region's vulnerability to 'erratic' international investors.
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