Dcr Sees Liquidity Moves Unnecessary

The apex bank had announced a string of liquidity restraining measure to curb volatility in the forex market last month. The list of measures includes a hike in cash reserve ratio by 50 basis points to 8.5 per cent, a hike in bank rate by 100 basis points to 8 per cent and a 50 per cent cut in bank refinance rates. The apex bank has also imposed surcharge on interest rates on import finance and introduced penal interest on the delay in repatriation of export proceeds.

A DCD India release said these measures were not necessary. The fall in the rupee was only by three per cent in the last three months in comparison to a year-on-year fall of six per cent in the last fiscal. The agency also attributed the fall in rupee to higher imports, jump in international oil prices, and strengthening of dollar against other major currencies.

 

Speculative activities did not play a major role to weaken the rupee. In a situation like this, DCR India has suspected that the liquidity tightening measures would push up interest rates which would slowdown the recovery process of the Indian economy.

The agency thinks that higher interest rates will affect the corporates as well as government borrowings, and will hamper capital investment, which is already at a very low level.

DCR feels that the slowdown in industrial recovery will hurt indirect tax collection as well. The agency sees the RBI measures contradictory to the country's commitment to the world community of moving towards a deregulated regime.