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N. Kamakodi

As we have been observing the past few weeks, the RBI has been making swift moves to arrest the prevailing global financial crisis from making any deep inroads into our financial system.

The RBI Governor has clearly indicated that the monetary measures initiated recently were proactive to address the pressing requirements arising out of events occurring outside the country. The proactive measures of the RBI — the cut in CRR in quick succession by 250 basis point and the reduction of 100 basis point in the repo rate have certainly injected liquidity amount of Rs 1 lakh crore into the system.

In the first week of October, the call rate moved from 16.75 per cent to 21 per cent and after the cut in CRR, it came down to 6 per cent. At the same time, the inflation rate also came down to 11.07 per cent on October 23 from 12.40 per cent on August 28.

Rightly, therefore, the RBI has not touched upon these tools in the Mid-Term Review of the Annual Policy announced yesterday. The multiplier effect of the recent measures towards easing the liquidity is yet to be seen.

Foreign institutional investors have seen the value of their India portfolio drop three-fourths or about $190 billion this year, a tumultuous one for the market worldwide. FII holdings dropped to below $60 billion this week, from around $ 244 billion in January. Correspondingly, India’s forex reserves dropped from $315 billion to $274 billion in October.

The Governor’s main concern remains inflation control as he has decided not to reduce any key rates, quite contrary to market expectations. In short, the review policy is directed more towards stability, inflation control and achievement of reasonable growth. One has to appreciate that the central bank has remained proactive and has been taking steps to restore confidence to the investors and the market.

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