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PM's economic panel pitches for further cut in CRR

Source: PTI
October 13, 2008 16:35 IST
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The Prime Minister's Advisory Council on Monday pitched for more cuts in the statutory liquidity and mandatory cash deposits that banks are required to keep with the Reserve Bank and efforts should be to boost economic growth.

"I do expect those measures (cash reserve ratio and statutory liquidity ratio reduction) could be taken to further ease liquidity," PMEAC chairman Suresh Tendulkar told PTI.

As domestic fund position is tight, he said, "Either of the instruments could be used to infuse liquidity in the system."

Tendulkar further stressed that since the inflation seems to easing, the policy stance of the Reserve Bank as well as the government should 'gradually... shift towards growth.'

Last week, RBI slashed CRR by 150 basis points to 7.5 per cent, a move that has released Rs 60,000 crore (Rs 600 billion) in the cash strapped banking system.

In the past five years, this is the first time that the apex bank has gone in for reducing the CRR. RBI last reduced the ratio in June 2003.

Asked whether the RBI should go in for reduction of the short-term lending (repo) rate to boost liquidity, Tendulkar said, "At this juncture I would not rule out a cut in repo rate."

Moreover, he added, as part of the liquidity management exercise, the RBI could also consider reduction in the Statutory Liquidity Ratio, the amount which the banks are required to park in approved government securities.

To infuse liquidity in the system, RBI indirectly reduced the SLR by one per cent to 24 per cent last month.

Besides, the central bank had raised ceiling on NRI deposits denominated in forex and rupee by 50 basis points with immediate effect.

There is no matter of concerns in the banking sector of the country , he said, adding, "Our banks are well-capitalised and regulatory framework is tight."

On the GDP growth rate, Tendulkar said, "We will stick to 7.7 per cent growth projection announced in July."

Economic indicators have not changed dramatically, he said, adding, the panel will review forecast in January.

During the first quarter of the current fiscal, the economy clocked a growth rate of 7.9 per cent.

Commenting on industrial number, Tendulkar said it is likely to pick up in the coming months as demand for consumer durable and other segment will increase during the festival season.

During August, Index of Industrial Product grew by 1.3 per cent against a high of 10.9 in the corresponding period last year, mainly on account of poor performance by the manufacturing sector.

He said the agriculture production seems to be good. Wheat procurement has been robust.

On the whole India story is better than other countries, he added.

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