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Policy tweaks to pump credit on the cards

The Reserve Bank governor and the Finance Minister are now constantly tweaking policy measures to run between the wickets of low inflation and high growth.

business Updated: Nov 18, 2008 21:53 IST
HT Correspondent

Like batsmen scrambling to get every single in a one-day cricket match, the Reserve Bank governor and the Finance Minister are now constantly tweaking policy measures to run between the wickets of low inflation and high growth. On Tuesday, they talked again, and hinted at more to boost the score.

RBI is expected to take more steps to ease loans as companies are struggling to keep current projects going, not to speak of planned ones.

“We are constantly monitoring the situation. We will take appropriate action at the appropriate time,” Reserve Bank of India (RBI) governor D.Subbarao said after a meeting with Finance Minister P.Chidambaram.

Chidambaram said the government would focus on problems facing exporters and the infrastructure sector, adding the Prime Minister had asked RBI to keep a close vigil on liquidity and credit delivery. With inflation back to single digits, hopes are up.

The RBI governor, however, refused to say anything about the possibility of a cut in key interest rates. “Nothing to say on policy,” he said.

The government and monetary authorities would watch the movement of the inflation rate to be certain that these are definite signs of easing of the price line, while they strive to pump credit to boost growth.

The RBI has cut the cash reserve ratio—the share of deposits banks have to park with the RBI—by 3.5 percentage points to 5.5 per cent releasing about Rs 1,40,000 crore into the system.

The repo rate—the rate at which banks borrow from the RBI—has also been cut by 1.5 percentage points to 6.5 per cent.
Earlier, addressing industrialists at the World Economic Forum’s India Economic Summit, Chidamabaram said the government had been “proactive” on liquidity to help banks.

He said providing liquidity was only the “first step.”

“The second is ensuring appropriate price and the third step is ensuring that credit is actually delivered to industry...These are not insurmountable problems,” Chidambaram said.