Shrinking liquidity

Normally, growth in money supply is required to be at least as high as growth in nominal GDP.The excess of money supply over nominal GDP growth is often referred to as excess liquidity. The chart shows how liquidity actually shrank in 2010-11, since money supply growth was below growth in nominal GDP. According to this criterion, therefore, contrary to what the critics of the RBI have said, monetary policy during the last fiscal has been very tight, although it could be argued that the lack of government spending contributed to the tightness.

Milestone Alert!
Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!