Date:23/05/2006 URL: http://www.thehindu.com/2006/05/23/stories/2006052315440100.htm

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Chidambaram: no liquidity crisis

Ashok Dasgupta

Reiterates fundamentals of economy are strong, many FIIs long-term players

NEW DELHI : With the stock exchanges into a tailspin yet again on Monday — the Sensex nosedived by over 1,100 points in intra-day trading — the Finance Ministry was at pains to assure investors that there was ample liquidity and, therefore, no cause for panic.

Following an "emergency" meeting to take stock of the "panic situation" and restore sanity as the markets went on a roller coaster, Finance Minister P. Chidambaram told newspersons here: "I have spoken to the Reserve Bank of India Governor and there is no liquidity problem. Money would be provided to those who want to answer margin calls."

Amplifying his statement, Economic Affairs Secretary Ashok Jha reiterated that banks were advised to provide ample liquidity to those who were in need of funds to meet margin requirements in the stock markets.

Explaining the likely cause of the market crash, Mr. Jha said: "It appears that some brokers trading on the proprietary account may have come under margin pressure and, therefore, may have sold. The RBI has made it clear that banks have been advised to provide ample liquidity to those who may require money to meet margin requirements. Banks are doing so."

Mr. Chidambaram reiterated that the fundamentals of the economy were strong and many of the foreign institutional investors were long-term players, implying that their selling behaviour should not send panic signals.

The swift action by the authorities coupled with the Minister's assurance yielded results. A sharp recovery followed resumption of trading after a one-hour suspension.