Ahead of RBI's mid-year monetary policy, the Plan panel suggested that the central bank should not hike the Cash Reserve Ratio (CRR), the amount banks are required to keep with the apex bank.
However, the panel said that RBI may consider raising short-term key policy rates. "There is no cause for tightening CRR ... certainly because you do have liquidity shortage in the market", Planning Commission Principal Adviser Pronab Sen told reporters here. He said, "They (RBI) have to think, how to keep liquidity levels up and if FIIs flow continue that would not be an issue."
The central bank will unveil its mid-year review of the monetary policy tomorrow. Asked about the impact of raising of repo and reverse repo (short term lending and borrowing) rate by 0.25 per cent on the economic growth he said, "It would make no difference. Sooner or later you have to go back to normal and that has to be done gradually".
The RBI has increased key policy rates five times since January 2010 to tame inflation. The inflation was 8.62 per cent in September, while the food inflation for the week ended October 16 was 13.75 per cent. About slow growth of core sector and index of industrial production, Sen was of the view that one should not be carried away with the sudden surge or dip in them.
Explaining further, he said, "Only one thing is causing up and down, that is capital goods which has always been volatile but this time volatility is little excessive." RBI in its monetary policy review is expected to take steps to contain inflation without hurting the growth - a difficult balancing act.