CRR cut likely, but SLR level to stay: RBI
06 March 2012
The Reserve Bank of India has hinted at another reduction in the cash reserve ratio (CRR) in the near future to ease the liquidity crunch in the system.
Deputy director Subir Gokarn, in charge of the central bank's monetary policy, told newspersons on the sidelines of a function in Mumbai on Monday that while a CRR cut was likely, there was little scope for reducing the statutory liquidity ratio (SLR).
However, he has ruled out a cut in the statutory liquidity ratio or SLR, saying that such a move will not create any additional cash flow.
The RBI had cut CRR - the amount that banks are obliged to park with the central bank - by 0.5 percentage points to 5.5 per cent on 24 January, releasing Rs32,000 crore into the system. However, since then the fund crunch in the economy has only worsened; with industrial growth at its lowest in years.
Stating that the liquidity deficit is partly structural and partly temporary, Gokarn said that the reason why RBI is conducting open market operations consistently is to address that problem.
"When the space opened up for a CRR cut, we used it," Gokarn said in an interview to CNBC-TV18. "That space still exists, so if we think it is appropriate we will use it."