ibnlive » India

Nov 18, 2008 at 06:02pm IST

FM, RBI Governor discuss economic safeguards

New Delhi: The Reserve Bank is continuously monitoring the liquidity situation and would decide on its future course of action on interest rates at an appropriate time, Governor D Subbarao said on Tuesday.

"We are hearing what everyone is saying and the decision will be taken at an appropriate time," Subbarao told reporters after his meeting with Finance Minister P Chidambaram, when asked whether the RBI was considering further rate cuts.

Subbarao is believed to have discussed the current liquidity situation in the country's banking system at a meeting with the Finance Minister in New Delhi, where private sector banking giant ICICI Bank CEO and CII President K V Kamath was also present.

"The RBI is constantly and continuously monitoring the situation," the RBI Governor said.

Asked if ICICI Bank would cut interest rates, ICICI Bank CEO and CII President K V Kamath said that interest rate "is a play of demand and supply".

"Nobody has asked us to cut interest rates. I am among the first to say that interest rates have to decline. Confidence in business has to come back," Kamath noted.

Only a day ago, Commerce Minister Kamal Nath had said after a meeting of the Prime Minister-chaired committee on tackling the global turmoil, that the RBI might look at fresh measures to inject more funds into the cash-starved banking system.

"The meeting considered certain steps and the RBI will look at them. Various methods of injecting liquidity through the repo and reverse repo (short-term) rates were discussed," Kamal Nath said.

Asked how soon the measures would be announced, Nath said, "This will happen in due course. It will not take long. The government is conscious of the fact that the Prime Minister himself is monitoring (the situation), which means action would be taken soon."

The meeting was also attended by Finance Minister P Chidambaram, Planning Commission Deputy Chairman Montek Singh Ahluwalia and RBI Governor D Subbarao.

The RBI has unlocked Rs 2.75 lakh crore during the past few weeks through cuts in mandatory deposits that banks need to keep with RBI. It also allowed housing finance companies to borrow short-term funds from overseas sources.

However, despite the measures taken by the RBI, the liquidity condition and high interest rates continue to be a matter of concern for industry.

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