The government believes monetary measures taken by the Reserve Bank of India over the past week have not only helped in tiding over the severe liquidity crisis but are sufficient to take care of the growth in credit demand.
Privileged sources said that the committee under Finance Secretary Arun Ramanathan, which is studying the liquidity situation, is satisfied with the present liquidity status. A full report on the issue will be submitted soon.
The country’s banking system has also indicated that the liquidity situation is “comfortable” and will be able to handle the immediate credit demand, though low inflow of global capital funds continues to be a cause for concern. This in turn will keep the depreciating pressure on the rupee, a banker said.
The RBI has already reduced the cash reserve ratio or the mandatory level of deposits that banks are required to park with the central bank to 6.5 per cent from 9 per cent while the short term lending rate — repo rate — has been brought down to 8 per cent with a view to ease the liquidity crunch. Industry sources, however, said that a further cut in repo rate cannot be overruled. The central bank is scheduled to announce its half yearly review of monetary policy on Friday.
“There could be some more monetary measures taken to address the situation,” a banking source said.
Mahesh Purohit, director, Foundation for Public Economic and Policy Research, said that the move will reinstate confidence in the country’s financial sector. “Creating demand is crucial at this juncture and the move is the right step towards that,” he said.