RBI Dy Governor says tight liquidity temporary

Rakesh Mohan, Deputy Governor of Reserve Bank of India (RBI), today said the cash tightness in the banking system was temporary. "There is temporary tightness in liquidity because of December tax outflows and impact of the increased cash reserve ratio (CRR)," he said.

Mohan said he expected the overall liquidity by the end of March to be the same as the year before. "After tax outflows, it takes time for expenditure to take place. I don't see much change in liquidity," he said.

The Deputy Governor said he expected cash in circulation to remain in the range of Rs 80,000-1,00,000 crore by the end of this financial year.

The central bank had, in early December, announced an increase in CRR to check inflationary pressures. It had proposed to raise the ratio to 5.50% in two stages of 25-basis points on December 23 and January 6, 2007.

Mohan was speaking to reporters here after a meeting of the central board of RBI, which was attended by Governor Y V Reddy, Economic Affairs Secretary Ashok Kumar Jha and Deputy Governor V Leeladhar.