Ashok Dasgupta

Investors want more monetary relaxation measures

Chidambaram hopes Indian bourses will maintain buoyancy as in U.S., Europe

Ahluwalia appears to be in favour of a cut in repo rate

NEW DELHI: Even as the Reserve Bank of India on Tuesday injected another dose of liquidity, providing Rs. 20,000 crore to the mutual fund industry to help it overcome redemption pressures in the wake of the financial crisis, stock market investors and the industry at large are looking forward to some more monetary relaxation measures towards instilling long-term confidence.

The optimism stems from the statements by policymakers pointing to rate cuts which came prior to Prime Minister Manmohan Singh’s late evening meeting to review the impact of the global financial turmoil on the Indian economy and the steps taken to tackle the crisis. Finance Minister P. Chidambaram, RBI Governor D. Subbarao, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Finance Secretary Arun Ramanathan participated in the discussions.

While the policy options likely to be effected further are not known, Dr. Ahluwalia appears to be in favour of a cut in the repo rate at which banks borrow from the apex bank. For, that would send a clear message for a cut in interest rates.

On the contrary, members of the Prime Minister’s Economic Advisory Council have indicated the need for a further cut in the CRR (cash reserve ratio) as that would release additional bank funds currently parked with the central bank.

However, following a meeting with Mr. Chidambaram earlier in the day to explore the options to tackle the liquidity crisis, the RBI Governor said: “We have reviewed the entire situation. The situation is quite comfortable …We believe everything is under control. I cannot tell you what measures are going to come. We have done everything that had to be done.”

Early in the morning, even as the RBI announced the additional infusion of liquidity to help the mutual fund industry, Mr. Chidambaram expressed the hope that the Indian bourses would maintain the buoyant mood in keeping with the upswing displayed by markets in the U.S., Europe and East Asia.

Restoring confidence

In his statement to the media here, he said: “The U.S. and the European capital markets closed on a strong note last [Monday] night. The East Asian markets have opened on a bright note this [Tuesday] morning. It appears that the measures announced by various governments and central banks have not only infused greater liquidity into the markets but also helped restore confidence to a significant degree. I hope that the same sense of optimism and confidence will be visible in the Indian markets too.”

The relaxation measure announced by the RBI on Tuesday pertains to infusion of liquidity to the extent of Rs. 20,000 crore through short-term (14-day) lending to banks at an annual interest rate of nine per cent to help the mutual fund industry overcome redemption pressures. For onward lending by banks to the mutual fund (MF) houses, an appropriate rate is to be fixed after consultations between the IBA (apex association of banks) and MF industry representatives. The mutual fund industry informed Mr. Chidambaram that it would provide certificates of deposits as collateral for borrowings from banks.

Spurred by the RBI’s liquidity enhancement measure coupled with the positive global cue, the Bombay Stock Exchange’s 30-share Sensex soared by more than 500 points in early trade, over and above the nearly 800-point jump posted on Monday.

However, with investors choosing to book profits, the market pared a large part of the early gains to close about 174 points higher at 11,483.40. The National Stock Exchange’s 50-share Nifty also went up by 27.95 points to 3,518.65.

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