'RBI may mull withdrawal of excess liquidity'

The Reserve Bank of India (RBI) may consider withdrawing excess liquidity in the system to tame high inflation in its monetary policy review later this month, Suresh Tendulkar, economist and former head of the Prime Minister's Economic Advisory Panel, said today.

The Reserve Bank will review its monetary policy on January 29.

"The RBI may consider withdrawal of excess liquidity in the system, but concerns over large government spendings would continue to weigh," Tendulkar said.

Rising inflation is largely driven by food prices and there is need to accelerate imports and enhance supply thorough all possible ways, Tendulkar said on the sidelines of a conference here.

"The monetary policy does not have a major role to play in combating inflation but as a signalling move, RBI may look to contain liquidity by opting for a hike in banks' cash reserve ratio (CRR)," Tendulkar said, adding that there was no room for the central bank to change its key policy rates.

Tendulkar said that the economy is expected to grow about 7.5-8.0 per cent in 2009-10.

Kaur said the government attached greater importance to the grievances of the Micro, Small and Medium Enterprises (MSMEs), which were worst-hit during the recent economic crisis.

Referring to problems faced by the MSME sector in not getting adequate credit, Kaur underscored the importance of building up an interface between the banking and MSME sectors.