RBI liquidity support no cue on policy: Chawla

The Reserve Bank of India's recent measures to ease temporary cash crunch at banks have no bearing on its monetary policy action, Finance Secretary Ashok Chawla said on Monday.

Chawla also said inflation still remained a major concern, hinting policymakers were not yet ready to lower their guard in their fight against inflation.

The Reserve Bank of India's Sunday move of extending the special liquidity measures unveiled last week by 3 days to Nov. 4, to help banks tide over a temporary cash crunch, had stoked speculation that it might refrain from raising key rates for the sixth time at its review on Tuesday.

"(This is a) very temporary measure that has nothing to do with monetary action," Chawla said.

The RBI said it would conduct two liquidity adjustment facility auctions between November 1 and November 4, and also allow banks to avail funds under the special measures of up to an additional 1 percent of their deposits as on October 8.

Indian overnight cash rates had surged to their highest in two years as mutual funds faced redemption pressure from banks to refund excess subscriptions to the Coal India share sale, which was more than 15 times covered, dealers said.

The government will raise close to $3.5 billion from the sale of a 10-percent stake in Coal India, the world's largest coal miner.

STUBBORN INFLATION

The RBI is battling stubbornly high headline inflation, which inched up to 8.62 per cent in September on higher food prices from 8.5 per cent in the previous month, and aims to bring it down to 6 percent by March.

Food inflation, until recently a supply-side problem, is beginning to become more entrenched and spilling into the broader economy, complicating monetary policy.

The Reserve Bank has raised its repo rate, at which it lends to banks, by 125 basis points to 6 per cent, and increased its reverse repo rates, at which it borrows from banks, by 175 basis points to 5 per cent since mid-March.

A Reuters poll last week showed the RBI will likely raise its key rates by at least 25 basis points.