RBI move to address money supply problem: Finmin

"They have taken a call on the fact that inflation has moderated and the basic problem today, though temporary, is liquidity deficit. So they have responded to that which will make Rs 48,000 crore available in term of injection. That is important, very crucial so that credit delivery is not impacted," Finance Secretary Ashok Chawla told reporters.

He termed the RBI's action as "appropriate step". Responding to the growing liquidity crunch in the system, the RBI today announced measures to pump in Rs 48,000 crore.
Blaming the government's huge cash balance for aggravating liquidity situation, the central bank said it will purchase sovereign securities for Rs 48,000 crore in a month, expected to ease situation of cash-strapped system a bit.

It also cut Statutory Liquidity Ratio (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 per cent from the present 25 per cent. However, enthused by 8.9 per cent growth rate for the second quarter, RBI, however, did not change its projections for 8.5 per cent economic growth this fiscal and preferred to revisit numbers at its next review on January 25.

At the same time, the Reserve Bank kept short-term lending and borrowing rates (repo and reverse repo) as well as mandatory deposit requirement for banks (cash reserve ratio) unchanged, which will prompt most banks to hold on to their interest rates.

In its review, the RBI also cautioned that inflation still remains a major concern because of rising demand and high global commodity rates.When asked if the RBI's move will add to the inflation, Chawla said: "I don't think so."

Inflation has been on a declining trend for some time and had fallen to an 11-month low of 7.48 per cent in November. However, according to figure released today, food inflation went up to 9.46 per cent for the week ended December 4 from 8.60 per cent 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 per cent by March-end.

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