Date:28/03/2006 URL: http://www.thehindubusinessline.com/2006/03/28/stories/2006032800300801.htm

Back Stepping on RBI's toes

The Finance Minister's reported directions at the meeting with the chiefs of public sector banks are surprising.

The first relates to the liquidity. As the custodian of the financial system, the Reserve Bank of India, and not the Government, should decide whether there is adequate liquidity in the system.

It then follows that the RBI should take appropriate measures — to lower the cash reserve ratio or buy government securities or meddle with the repose system, depending on the perceived nature of liquidity. The Government should refrain from expressing its views.

The second pertains to prescribing ceiling on banks' lending rates, which surely is not conformity with the liberalisation process.

If the Government is really keen on improving the conditions of farmers, it can subsidise the high interest burden directly to them. This would also impart transparency.

N. Nagarajan

e-mail

Letters to the editor and contributions can be sent by e-mail to: bleditor@thehindu.co.in