RBI rules out CRR cut to ease liquidity situation

Emphasising that its monetary policy stance was still focused on checking inflation, the Reserve Bank of India (RBI) today said it would not liberalise key policy ratio--CRR--on deposits to leave more funds in the hands of banks.

"The CRR clearly remains an option but we at this point believe that our monetary stance is still anti-inflationary. We are still dealing with inflation and we don't want to send any mixed signal about a change in monetary stance," RBI Deputy Governor Subir Gokarn told reporters on the sidelines of a seminar organised by the Finance Ministry here.

"For time being we are using the more tactical measures like SLR (Statutory Liquidity Ratio) and so on to deal with the liquidity situation and there seems to be some response to it," he said.

Earlier in the day, Finance Secretary Ashok Chawla said: "These (liquidity) are temporary ups and downs...Not a major one."

Earlier this week, the RBI reduced SLR, the percentage of deposits kept in government securities by two per cent to infuse liquidity in the cash crunch system.

Scheduled commercial banks may avail of additional liquidity support under LAF to the extent of up to 2 per cent of their net demand and time liabilities (NDTL) as on the reporting Friday of the second preceding fortnight, the central bank had said in a statement.

"For any shortfall in Statutory Liquidity Ratio (SLR) maintenance up to January 28, 2011, arising out of availment of this facility, banks may seek waiver of penal interest on a fortnightly basis, purely as an ad hoc, temporary measure," it had said.

Usually banks have to maintain SLR limit of 25 per cent.

Gokarn said RBI has taken number of measure to ease liquidity after spectrum auction that sucked out about Rs 1 lakh crore from the system.

Since then, he said, "we have taken number of steps to try and ease liquidity situation these included in particular the reduction in SLR and that has put some money in the system."

On effectiveness of monetary measure on price control Gokarn said, "The monetary response is to ensure that expectations are anchored and we don't allow the food pressure to translate into wider inflationary pressure that is what we have been doing all along and that is what we have been saying all along."

He said, "Our actions are conditioned by the need to prevent food inflation from spilling over to more broader base inflation pressure and as the economy is reaching capacity limits that risk is high. So we need to act accordingly."