The central bank needs to consider a cash crunch in setting interest rates as companies pay third-generation (3G) phone license fees, said Kaushik Basu, the chief economic adviser in the finance ministry. “With the 3G auction and demand for credit having picked up, there is a credit hunger now,” Basu, 58, said in New Delhi on Thursday.
“The Reserve Bank of India (RBI) will need to take stock of it as it balances the demands of inflation management and growth in deciding actions on policy rates,” he added.
Governor Duvvuri Subbarao is facing headwinds to tighten monetary policy and slow the fastest inflation rate among Group of 20 nations. Last week, RBI eased rules to boost liquidity as operators including Bharti Airtel prepared to pay a combined $14.5 billion for wireless permits.