RBI says new funds to help festive demand, mulls more

The Reserve Bank of India has defended its cut in the Cash Reserve Ratio saying the additional funds released will take care of increased credit demand in the coming festive season, HT reports.

The Reserve Bank of India (RBI) has defended its cut in the Cash Reserve Ratio (CRR), saying the additional funds released will take care of increased credit demand in the coming festive season.

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"We took a little bit of forward look. Typically around festival season things tend to tighten up a bit," said Subir Gokarn, deputy governor, RBI on the sidelines of the Financial Leadership Conclave in Mumbai. "We are now certain that the liquidity situation will not become an impediment to any economic activity."

RBI had left interest rates unchanged on Monday, but lowered the proportion of deposits that banks must keep with the central bank, by 25 basis points, injecting around Rs. 17,000 crore of primary liquidity into the banking system.

Gokarn did not rule out buying bonds in the open market to inject additional liquidity, if needed, as Monday's measures raised concerns that corporate tax outflows and rising cash demand in the festival season usually drain liquidity.

"Open market operations are very tactical. When we have felt the pressure might persist, we have used them, that remains," Gokarn said.