Date:14/10/2008 URL: http://www.thehindu.com/2008/10/14/stories/2008101459351000.htm

National

More cuts in RBI mandatory norms under study

Special Correspondent

NEW DELHI: The official panel headed by Finance Secretary Arun Ramanathan, which was set up to look into the liquidity requirements, on Monday held its first meeting and considered options for increased flow of credit in the monetary system. Among the measures under study are further cuts in the Reserve Bank’s mandatory norms under which banks are required to park cash deposits with the apex bank. Alongside, the RBI has also directed commercial banks not to stop lending to their customers.

Reading out a statement at a news conference earlier, Finance Minister P. Chidambaram promised a slew of concerted measures to infuse more liquidity and advised investors to take “informed” decisions, without haste or panic.

He sought to emphasise that the root cause of the current uncertainty was liquidity and not any dramatic change in the fundamentals of the country’s economy. To tide over this problem, he mentioned the infusion of Rs. 60,000 crore as additional liquidity by cutting 150 basis points in the CRR. Another Rs.91,500 crore had been accessed by banks through the liquidity adjustment facility (LAF) window.

“We believe that these steps should ease the liquidity situation and the flow of credit should become smoother, relieving the pressures that had built up in the last two weeks … If all the players in the economy remain confident and take informed decisions, I have no doubt that the Indian economy will weather the current storm and emerge stronger,” he said.