RBI decision to ease liquidity, promote growth: Pranab

RBI decision to ease liquidity, promote growth: Pranab

The Reserve Bank's decision to unlock Rs 32,000 crore by reducing the Cash Reserve Ratio (CRR) by 0.5 percentage points will ease the liquidity situation and promote growth without fuelling inflation, Finance Minister Pranab Mukherjee said today.

"(RBI's) announcement should help to address the money market liquidity, which had tightened in the past 2-3 months... while balancing the downside risk on growth and deceleration in moderation of inflation," he told reporters.

The banks, Mukherjee added, "will have more money to lend and liquidity will increase. Because of the inflation pressure, they have not altered the interest rates... I welcome the decision of the RBI."

Earlier in the day, the RBI reduced the CRR -- the portion of deposits banks are required to keep with the central bank in cash -- by 0.5 per cent to 5.5 per cent.

Mukherjee, however, refused to comment on the impact of the Reserve Bank's measures on interest rates.

With respect to the RBI's criticism that a high fiscal deficit was preventing the central bank from reducing interest rates, Mukherjee said the government has been taking steps and would unveil measures to address this issue in the Budget for 2012-13, to be announced some time in March.

"... We want to reduce it (inflation) by adjusting the fiscal policy, which I am doing... and I shall (disclose) the essential features in the Budget," he said.

Although inflation came down to 7.47 per cent in December, 2011, he said "pressure in the system, particularly in manufacturing inflation is sticky... There is necessity to ensure that inflationary pressure do not go up."

Economic growth, according to the RBI, is expected to decelerate to 7 per cent this fiscal from 8.5 per cent last year.