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For ages, we thought a Will is necessary only for the rich. No more. Changing family structures,...

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Radia’s agenda & modus operandi

With Reliance Industries and the Tata group—two of India’s biggest corporate accounts —under her...

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RBI move to ensure liquidity will not fuel inflation: Montek

New Delhi: The Plan panel today said the Reserve Bank of India’s (RBI) decision to infuse Rs48,000 crore into the banking system and leave interest rates untouched is to ensure adequate liquidity without aggravating inflation, reports PTI.

“Now the concern of RBI should be to ensure that there is adequate liquidity and there is not too much inflationary pressure,” Planning Commission deputy chairman Montek Singh Ahluwalia told reporters here.

“RBI is counting on the fact that inflation is coming down and felt that there is some need to increase liquidity in the system which I think is a good idea. I personally support the idea of lowering the statutory liquidity ratio (SLR),” he added.

In its review, RBI cautioned that inflation still remains a major concern because of rising demand and high global commodity rates.

Inflation has been on a declining trend for some time and had fallen to an 11-month low of 7.48% in November.

However, according to figures released today, food inflation went up to 9.46% for the week ended 4th December from 8.69% a week ago, and the central bank also did not rule out the possibility of the rate of overall price rise going above its projections of 5.5% by March-end.

Responding to the growing liquidity crunch in the system, RBI today announced measures to pump in Rs48,000 crore.

It also cut SLR, which is a requirement for banks to keep portion of their deposits in government securities, cash and gold, by one percentage point to 24% from the present 25%.

However, it refrained from raising key short-term rates as well as cash reserve ratio.

The interest rates have been left where they are and that's not an unreasonable thing to do, Mr Ahluwalia said.

He also said, “I don't believe that the growth momentum should be maintained by putting a fix on short-term rates. In my view growth momentum today is better. I think growth is fine. That shows that overall management of the economy and overall vibrancy of economy is very good.”

Enthused by 8.9% growth rate for the second quarter, RBI, however, did not change its projections for 8.5% economic growth this fiscal and preferred to revisit numbers at its next review on 25th January.

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