Prime Minister Manmohan Singh will hold deliberations with Reserve Bank of India (RBI) Governor D. Subbarao later on Tuesday on steps to cushion India from the ongoing global financial crisis and to ease liquidity in the system.
"The RBI governor has returned to Mumbai. He has been requested to go over to New Delhi on Tuesday evening. He is scheduled to meet the prime minister later this evening," Finance Minister P. Chidambaram said in a statement.
Subbarao was in Washington over the weekend for the annual meeting of the International Monetary Fund (IMF).
The finance minister said it was brought to the notice of the government on Monday evening that some mutual funds faced stress in liquidity in meeting redemption requirements in respect of debt instruments and money market instruments.
"Consequently, the government requested the Securities and Exchange Board of India (SEBI) and the RBI to meet and address the issue," he said, adding that the meeting had resulted in the central bank releasing another Rs 200 billion ($4.18 billion).
The central bank said it would conduct a special 14-day repo (repurchase of securities) at a coupon rate of nine per cent for a notified amount of Rs 200 billion to enable banks meet the liquidity requirements of mutual funds.
The banking regulator had earlier reserved the right to conduct such auctions - where government securities are bought back to release cash into the financial system - depending on market conditions.
According to Chidambaram, who has been actively seeking to talk up the markets, the US and the European bourses closed on a strong note on Monday night, while those in East Asian markets opened on a bright note on Tuesday.
"It appears that the measures announced by various governments and central banks have not only infused greater liquidity into the markets but also helped restore confidence to a significant degree," he said.
"I hope that the same sense of optimism and confidence will be visible in the Indian markets too."
The Indian markets have thus far reacted positively to the developments, with a key equities index ruling at 11,827.52 points at noon, with a gain of 518.43 points, or 4.58 per cent, over the previous close.