Ahead of the much-talked about stimulus package to be announced this weekend, RBI governor D Subbarao on Thursday said the central bank will ensure continuous flow of credit to all productive sectors.
"We will try to maintain a comfortable liquidity position... And ensure conditions conducive for flow of credit to productive sectors, particularly the stressed export and small and medium sectors," he said, addressing a seminar on global financial crisis.
Noting that a period of painful adjustment is inevitable, he said, "We hope that all the economic agents will plan their business activities on the basis of this assurance (comfortable liquidity flow will be maintained)."
The fundamentals of the economy continue to be strong, Subbarao said, adding once calm and confidence are restored globally, economic activity in India will recover sharply.
Pointing out that the global crisis is not yet over, the governor said, "There may yet be surprises."
When asked what steps the RBI and government was proposing to announce on Saturday, Subbarao said, "We are monitoring the situation closely and continuously, and will take the appropriate action at appropriate time. I cannot at this point of time tell you what we will do and when".
The RBI and the government, according to official sources, are likely on Saturday to announce a stimulus package that would include cut in policy rates and taxes to ease liquidity situation and promote economic growth.
On the question of lowering interest rate, the governor said, "RBI doesn't issue mandates to banks on rates. We signal policy rates and expect banks to take signals."
Since mid-November, he said, the liquidity position has improved and number of banks have reduced lending rates.