Liquidity squeeze to end soon: FM

Finance Minister P Chidambaram today said the current liquidity tightening, which has pushed up call money rates to nine-year high yesterday, will ease in a few days as departments start spending money.

Talking to reporters on the sidelines of the release of a report by UNESCAP, he attributed the present liquidity squeeze to advance tax payments.

"Liquidity (tightness) is mainly due to advance tax payments, it will be alright in a few days as the ministries, departments start spending money," he said.

The government has collected around Rs 40,000 crore in advance tax payments in the last quarter of this fiscal ended March 15. Liquidity squeeze pushed up call money rates to 60 per cent intra-day yesterday before they closed at 17 per cent. Some banks, particularly foreign and private, used dollars to raise rupee resources for a day at a record rate of 105 per cent.

Meanwhile, Prime Minister Manmohan Singh today played down the fears of overheating in the economy, saying rise in inflation rate is a temporary phenomenon as growth impulses in India are very strong.

"We have already taken a number of steps and will take more steps in a few days to contain inflation," Singh said and asserted that contrary to predictions being made, crops forecasts are very encouraging.

There are positive signs that the economy is on upswing and emerging stronger as investments and savings are growing, he told reporters on the sidelines of the Defence Investiture at Rashtrapati Bhawan.

He said RBI was a monetary authority and would take adequate steps on that front to tame inflation. Saying that economic fundamentals were strong, he felt the problem of rise in inflation rate is momentary.

His comments came a day after, two of the top economic planners "" Planning Commission Deputy Chairman Montek Singh Ahluwalia and Chairman of the Prime Minister's Economic Advisory Council C Rangarajan "" cautioned about signs of overheating in the economy.