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Inflation fall frees RBI to boost liquidity

Inflation fall frees RBI to boost liquidity
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First Published: Mon, Jan 19 2009. 03 03 PM IST
Updated: Mon, Jan 19 2009. 03 03 PM IST
New Delhi: “A sustained decline in inflation in recent weeks has given the Reserve Bank of India (RBI) room to raise liquidity without fuelling prices,” Commerce and Industry Minister Kamal Nath said.
Speaking at a business conference in the capital, Nath said that the government may announce further stimulus measures after the end of January.
“There is room for injecting more liquidity,” Nath said adding: “RBI will certainly consider this and devise commensurate policy for injection of liquidity into the economy.”
He said that the recent cuts to policy rates and banks’ cash reserve ratio (CRR) had increased the supply of funds, offering comfort to a severely squeezed industrial sector.
RBI which meets for a scheduled review on 27 January 2009 has cut rates sharply to boost sagging growth.
RBI’s last 50 basis points cut in the CRR kicked in over the weekend, releasing Rs200 billion ($4.1 billion) into the banking system.
On Saturday, PM Manmohan Singh said that inflation was expected to decline further and that would provide ample flexibility for monetary policy.
Wholesale price inflation, the most commonly watched price barometer in India, peaked at 12.91% in August and has more than halved since then to 5.2% in early January. Economists expect it to fall to 1-2% by March.
Most analysts expect growth to be around 7% for the current year ending March, sharply below an average rate of around 9% in the last three years. Economists expect the central bank to cut rates by 50-100 basis points by March.
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First Published: Mon, Jan 19 2009. 03 03 PM IST