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RBI for 'appropriate' liquidity to tackle slowdown

Pursuing a policy of providing 'appropriate' liquidity in the system to tackle the problem of slowdown of the economy would be a better option for the central bank, Reserve Bank of India Deputy Governor Y V Reddy said on Wednesday.

Reddy told the Indian Chamber of Commerce during an interaction in Kolkata that the country's monetary policy was carefully devised to absorb any shock, adding that after weighing out the various risks factors, the central bank should infuse 'appropriate' liquidity in the system.

Reddy said that the policy of 'appropriate' liquidity rather than ample liquidity was better keeping in view the impact of it on the price line.

The RBI official said as the Centre was almost through with its borrowings programme, and on the basis of estimates of the finance ministry, slippages of the fiscal front was likely to be within the limits of acceptance, he added.

In such a scenario, Reddy said that the central bank could follow a policy of easy liquidity which could pump prime the economy.

Stating that the state of the Indian economy was not so worrisome as depicted, Reddy said that a five per cent GDP growth rate in the context of the worldwide slowdown was acceptable.

He said that worldover, central banks had been gradually reducing the reserve and liquidity requirements of the commercial banks, a trend which was also closely watched by India.

According to him, reduction in CRR and SLR requirements would ease pressure on the banks, which would help them in turn to compete efficiently in the market.

The RBI official, however, cautioned that latest research showed that the quantum of household domestic savings directed towards the financial sector had plateaued.

This according to him, would also result in the decline in foreign savings.

Reddy said that money supply to the economy was quite moderate at 14.5 per cent for the full year. Reserve money growth had been driven by foreign exchange inflows and was not a source of discomfort, he noted.

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