The Reserve Bank of India (RBI) may consider withdrawing excess liquidity in the system to tame high inflation at its monetary policy review, veteran economist and former Head of Prime Minister’s Economic Panel, Suresh Tendulkar, said here.
The Reserve Bank will review its monetary policy on January 29.
“The RBI may consider withdrawal of excess liquidity in the system, but concerns over large Government spending would continue to weigh,” Tendulkar said.
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Rising inflation is largely driven by food prices and there is need for accelerating imports and supply enhancement thorough all possible ways, Tendulkar said on the sidelines of a conference here.
“The monetary policy does not have a major role to play in combating inflation but as a signalling move, RBI may look to contain liquidity by opting for a hike in banks’ Cash Reserve Ratio (CRR),” Tendulkar said, adding that there was no room for the central bank to change its key policy rates.
Tendulkar said that the economy is expected to grow about 7.5-8.0 per cent in 2009-10.
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The Government is likely to announce withdrawal of stimulus measures in a phased manner in the forthcoming budget, he said.
“The economy is picking up and rising inflation is an indicator of that. The Government may come out with a road- map for a phased reduction in stimulus,” Tendulkar said.
Union Finance Ministry Joint Secretary (Finance), Ravneet Kaur said, Credit growth has started picking up and the demand for money will increase gradually.
The World Bank has sanctioned the first tranche of USD 2-billion loan for public sector banks sought by the Government. The disbursement will happen once a decision is taken on how the money is going to be distributed among the banks, Kaur said.
Kaur also said that out of the Rs. 4,000-crore stimulus provided by the Government, the Small Industries Development Bank of India (SIDBI) had till December-end availed Rs. 1,900-crore. Similarly, out of the Rs. 2,000-crore approved, the National Housing Bank (NHB) has availed Rs. 700-crore during the same period.
Kaur said the Government attached greater importance to the grievances of the Micro, Small and Medium Enterprises (MSMEs), which were worst-hit during the recent economic crisis.
Referring to problems faced by the MSME sector in not getting adequate credit, Kaur underscored the importance of building up an interface between the banking and MSME sectors.