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Plan Panel suggests that RBI keeps CRR unchanged

New Delhi: Ahead of the Reserve Bank of India's (RBI) mid-term monetary policy, the Planning Commission today suggested that the central bank should not hike the cash reserve ratio (CRR), the amount banks are required to keep with the apex bank, reports PTI.

However, the panel said that RBI may consider raising short-term key policy rates.

"There is no cause for tightening CRR ... certainly because you do have liquidity shortage in the market", Planning Commission principal adviser Pronab Sen told reporters here.

Mr Sen said, "They (RBI) have to think, how to keep liquidity levels up and if foreign institutional investors (FIIs) flow continue that would not be an issue."

The central bank would unveil its mid-year review of the monetary policy tomorrow.

Asked about the impact of raising of repo and reverse repo (short term lending and borrowing) rate by 0.25% on the economic growth he said, "It would make no difference ... Sooner or later you have to go back to normal and that has to be done gradually".

The RBI has increased key policy rates five times since January 2010 to tame inflation. The inflation was 8.62% in September, while the food inflation for the week ended 16th October was 13.75%.

About slow growth of core sector and index of industrial production, Mr Sen was of the view that one should not be carried away with the sudden surge or dip in them.

Explaining further, he said, "Only one thing is causing up and down, that is capital goods which has always been volatile but this time volatility is little excessive."

The RBI in its monetary policy review is expected to take steps to contain inflation without hurting the growth - a difficult balancing act.
 

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