| Credit Policy: FM to banks - draw right message |
| BS Reporter / New Delhi October 30, 2007 |
| Finance Minister P Chidambaram today supported the hike in cash reserve ratio (CRR) by the Reserve Bank of India (RBI) terming it as a correct step to mop up excess liquidity. Chidambaram also said that the CRR hike did not point to any change in the central bank's interest rate policy. "It is a continuation of the previous policy except that RBI has recognised that there is excess liquidity, and has raised the CRR to mop up excess liquidity. I think this is the correct thing to do now. There is no signal on policy rates. It is a status quo. I am sure that banks will draw the correct message from the RBI policy," Chidambaram said. "I also want to point out that RBI has emphasised two important matters. One is the need to be vigilant on the expenditure side and prudent expenditure management. The second aspect is that RBI has emphasised to respond through short-term and medium-term measures in the event of any changes in global shocks," he further added. When asked whether higher food prices are a cause of concern, Chidambaram said, "Food and fuel prices are not amenable to monetary policy changes. They are more a function of supply and demand. I am sure that the Ministry of Food and Consumer Affairs will take appropriate action to ensure that there is no supply-demand mismatch." On the growth forecast for the current financial year, Chidambaram said, "RBI has projected 8.5 per cent GDP growth rate. I can assume it will be slightly higher." On RBI |
