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Subbarao assures steps to ensure liquidity

Reserve Bank of India will take all steps needed to ensure adequate liquidity in the banking system, governor Duvvuri Subbarao said on Thursday while declining comment on the possibility of lowering the cash reserve ratio.

business Updated: Dec 08, 2011 21:01 IST

Reserve Bank of India will take all steps needed to ensure adequate liquidity in the banking system, governor Duvvuri Subbarao said on Thursday while declining comment on the possibility of lowering the cash reserve ratio.



“There is liquidity constraint across the system or certainly for certain banks,” Subbarao told reporters after an RBI board meeting here. “So as necessary, we will take appropriate measures to see that the liquidity situation is eased.”

The cash crunch, currently hovering around Rs 100,000 crore ($19.3 billion), is above the Reserve Bank of India’s comfort zone of 1% of the total deposits in the banking system, which roughly translates to Rs 60,000 crore at current levels.

Subir Gokarn, a deputy RBI governor, said on Wednesday that cash reserve ratio was not just a liquidity tool but a monetary policy signal. He said bond buybacks would be the route going ahead for easing liquidity. The bank has a tough job in ensuring liquidity for the banking system in a way it does not fuel inflation, which still remains high.