The Reserve Bank on Tuesday said its tight liquidity stance would continue as long as inflation is above its comfort level.
“If inflation is high above the comfort level, RBI’s general effort will be to keep the liquidity tight,” RBI Deputy Governor K.C. Chakrabarty told reporters on the sidelines of SKOCH summit here.
Wholesale price-based inflation, which remained high during most of 2011, has started showing signs of moderation and was measured at 6.95 per cent in February.
Tight liquidity situation in the system had forced banks to borrow over Rs 1.90 lakh crore from the RBI on Monday.
Notably, banks have been borrowing over Rs one lakh crore from the central bank on an average per day basis for the past two months.
In order to ease the tight liquidity pressure, the central bank has reduced cash reserve ratio — the portion of deposits banks are required to keep with the RBI — by a total of 1.25 per cent in two separate tranches in its January and March policy review this fiscal year so far. These steps infused a total Rs 80,000 crore into the banking system.
Asked if excise duty increase would lead to increase in inflation, he said, “if we can use technology and improve the work system processes, absorb the cost then there would not be inflation“.
The Finance Ministry and the Reserve Bank of India are likely to finalise today the market borrowing programme for the first half of the next financial year.
The government borrows funds from the market to bridge revenue-expenditure gap and also roll over the past debts which mature for repayment.
While unveiling the Budget proposals for 2012-13, Finance Minister Pranab Mukherjee had said that the net market borrowings for the fiscal would be Rs 4.79 lakh crore, up from Rs 4.36 lakh crore estimated in the current fiscal.
Last year the government had exceeded the budgeted borrowing target by over Rs 92,000 crore as high subsidy expenditure led to overshooting of government finances.