More measures, if needed: Subbarao

While predicting a more difficult next financial year, Reserve Bank of India (RBI) Governor D Subbarao today said the government and the central bank could take more measures to sustain growth and maintain adequate liquidity in the system.

“We will maintain a comfortable liquidity position. There are several options, several measures that we can take. We will explore and apply all of them as appropriate,” the governor told reporters after a convocation ceremony of Indira Gandhi Institue of Development Research.

Besides, he said that the special purpose vehicle (SPV) to provide Rs 20,000 crore liquidity to non-banking finance companies (NBFCs) would start operations in a week and help in easing liquidity constraints faced by these lenders. Last month, the government announced the establishment of the SPV to lend to NBFCs against securities such as commercial paper and non-convertible debentures.

The also said that RBI was trying to ensure that higher government borrowing did not disrupt the smooth functioning the market. “We will see that the market is stable. We will see that there is no volatility. We will manage the government’s borrowing programme in the most efficient fashion,” Subbarao said.

He, however, refused to disclose further details. Asked if the possible steps could be in the form of conducting open market operation, or restarting private placement for Gilts, Subbarao said: “We have not decided on anything as of now. We are in discussion with the government... It depends on the government borrowing programme, on the amount that needs to be borrowed and how we need to borrow it in the least disruptive way possible.”

On central bank’s decision to extend the forex swap facility for the banks from by nine months to March 31, 2010, Subbarao said it was done to provided comfort to the banks.

“If you look at the numbers, you will see swap facility not being used much. What banks have said is that they need the swap facility as a comforting factor. We decided that the comfort must be provided,” he explained.

In his address at the function, Subbarao said that 2009-10 would be more difficult and challenging than the current financial year as the global economy was going through an unprecedented economic crisis.

Commenting on the latest forecast by the International Monetary Fund (IMF) on India’s GDP growth, he said, “The IMF numbers are for the calendar year 2009, which encompasses perhaps the most difficult period.” IMF on its latest forecast said that the Indian economy was expected to grow by 5 per cent during 2009.

He, however, reiterated the good news of inflation continuing its downward journey.