The Hindu Business Line : Chidambaram welcomes RBI’s ‘balanced’ approach

New Delhi, April 29 The Finance Minister, Mr P. Chidambaram, on Tuesday welcomed the Reserve Bank of India’s decision to keep policy rates unchanged even as he endorsed the central bank’s move to hike cash reserve ratio (CRR) for sucking out excess liquidity from the system.

CRR hike

In its annual monetary and credit policy for 2008-09, released in Mumbai today, the RBI announced a 25 basis point hike in the CRR to 8.25 per cent with effect from May 24.

“RBI has balanced the requirement of ensuring that growth does not suffer, and at the same time, inflation is contained by hiking CRR rather than touching policy rates. I am glad that policy rates have not been touched as that would have impacted growth,” Mr Chidambaram told reporters at Parliament soon after the Lok Sabha passed the Finance Bill 2008.

The Finance Minister highlighted that CRR was “well-known” method that could be used for drawing out excess liquidity.

On Tuesday, the RBI left the repo rate, its short-term lending rate, unchanged at 7.75 per cent and the reverse repo rate, its borrowing rate, at 6 per cent. The Bank rate has also been kept unchanged at 6 per cent.

Inflation control

On inflation control, Mr Chidambaram said that he has already taken several fiscal measures, some of which were announced today.

“We are also ready with a set of administrative measures. We will discuss it over the next few days,” he said.

The Finance Minister also said that trade and industry should in a sense feel relieved as the RBI had kept the policy rates unchanged.

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