Press Esc to close
Saturday 30 July 2016
News updated at 6:29 PM IST
Weather
Max: 23.2°C
Min : 19.8°C
In Bengaluru
Generally cloudy

Measures being taken to ease liquidity crunch: RBI

Last updated: 13 November, 2010
Mumbai, Nov 13, DH News Service:

Sharp fall in factory output is worrisome, says the country’s apex bank

RBI Deputy Governor Subir Gokarn

RBI Deputy Governor Subir GokarnThe Reserve Bank of India (RBI), on Saturday, said it was taking measures to ease the liquidity crunch in the economy — currently estimated at around Rs 50,000 crore — that has worsened recently.

Further, RBI Deputy Governor Subir Gokarn said RBI’s policy statement on November 2 had tried to explain a comfortable liquidity band, which is plus or minus one per cent of the net demand and time liabilities (NDTL). 

However, Gokarn continued: “During the last couple of weeks the number(meaning:deficit) has been clearly above that.  That number was clearly around Rs 50,000 crore.” He was delivering a key note address at — The CFO Summit 2010 — organised by the Confederation of Indian Industry (CII), which is also supported by other industry bodies like ICSI and ICWAI, along with PricewaterhouseCoopers (PwC), as Knowledge Partner.

Festive demand

Furthermore, Gokarn pointed out that the economy has been experiencing liquidity shortfall due to a spurt in festive demand coupled with an over Rs 20,000 crore absorption on account of the recent share sale offer of public sector undertaking Coal India and Power Grid Corporation (PGCIL). In the above context, he said “We moved to a deficit liquidity situation in end May or early June. But in the last few weeks it has gone beyond what we think is a normal or a positive liquidity deficit.” According to him, even as some deficit in liquidity is desirable, still “in the last few weeks the liquidity situation has gone beyond the comfort zone.”

It may be recalled here that RBI earlier this week took some special measures aimed at easing the pressure on liquidity which enabled banks be able to avail more funds under the liquidity adjustment facility (LAF) for up to one per cent more on their deposits.

Gokarn pointed out that since the past few weeks, the apex bank has been taking measures to infuse liquidity into the system.  “During the past few weeks, we have relaxed the statutory liquidity ratio limits, did some open market operations and restructured the buyback and auctions of government bonds, to handle short-term liquidity problems,” said he. According to him, liquidity deficit is desirable from the monetary policy transmission point of view, especially when the economy had earlier moved into a surplus liquidity mode. This, Gokarn added, had been after the injection of money in the post-slowdown monetary measures adopted by the central bank and fiscal steps initiated by the government.

“An excessive liquidity deficit tends to bring about volatility in the short-term rates...which makes for some possible disruption for banking activities and credit flows,” RBI Deputy Governor said.

Historic highs

All along, bankers have been saying that liquidity has been tight in the system but it is for the first time that a top RBI dignitary has not only admitted it and also flagged it as an issue of concern. For the past few weeks, the call money rates have been ruling at historic highs.

However, Gokarn still maintained that “the process of policy normalisation” is almost complete,” suggesting that there will not be further hikes in key rates in the immediate future. He said, “growth and inflation” will be the main factors while RBI firms up its responses. It may be recalled that though food inflation has been on a southward spiral for the past one month, it is still at an elevated level of 12.30 per cent for the week ended October 30. In this context, Gokarn maintained that it is still a mixed bag as food inflation has been waning.

As far as the sharp fall in factory output growth, Gokarn noted that the latest numbers are disconcerting but  he was quick to add that the other key indicators such as corporate earnings and tax collection numbers show that the recovery process is on track, though they may not be as explosive as it was some quarters back.

“The IIP (index of industrial production) is suggesting somewhat of a deceleration (in the growth process). 5.5 (per cent) in August and 4.4 per cent in September, a lot of that deceleration is coming in from a sharp decline in capital goods, which, of course, must raise some concerns.” said he. Whether this deceleration, he asked, reflects a slowdown in investment activities? Attempting to reply, he said:”If that is the case, is it reflecting the cost of funding or is that reflecting weaker expectations of future growth or a combination of the two? All of these is a matter of concern.”


Go to Top

Photo Gallery
An elephant moves through a waterlogged street after heavy rains in New Delhi on Friday...

An elephant moves through a waterlogged street after heavy rains in New Delhi on Friday...

People catching fish at flooded water due to heavy rain Madiwala Lake over flow...

People catching fish at flooded water due to heavy rain Madiwala Lake over flow...

Rain water flooded on the road at Anugraha Layout 2nd stage, Bilekahalli in Bengaluru...

Rain water flooded on the road at Anugraha Layout 2nd stage, Bilekahalli in Bengaluru...

Workers remove scaffolding from a replica of planet earth after repairs at Science City...

Workers remove scaffolding from a replica of planet earth after repairs at Science City...

Women unload rice grains from a boat to dry in the sunshine in flood affected village Murkata...

Women unload rice grains from a boat to dry in the sunshine in flood affected village Murkata...

Members of Karunada Seene staging protest against Mahadai tribunal verdict at SBM circle...

Members of Karunada Seene staging protest against Mahadai tribunal verdict at SBM circle...

Karnataka Fire & Emergency Service personnel rescuing the people form the flood affected...

Karnataka Fire & Emergency Service personnel rescuing the people form the flood affected...

A boy tries to swim in the flooded water at Kodichikkanhalli area in Bengaluru on Friday...

A boy tries to swim in the flooded water at Kodichikkanhalli area in Bengaluru on Friday...

A young one-horned rhino trying to rise above water on the National Highway from the flooded...

A young one-horned rhino trying to rise above water on the National Highway from the flooded...

A Royal Bengal Tiger in a pool in Kolkata on Friday during International Tiger day...

A Royal Bengal Tiger in a pool in Kolkata on Friday during International Tiger day...

Copyright 2014, The Printers (Mysore) Private Ltd., 75, M.G Road, Post Box 5331, Bengaluru - 560001
Tel: +91 (80) 25880000 Fax No. +91 (80) 25880523