P Chidambaram hopes Reserve Bank of India will cut rates today.

NEW DELHI: Finance Minister P Chidambaram has called upon the Reserve Bank of India to address liquidity issues at its mid-quarterly review on Tuesday, clearly sending out a signal that the government expects a reduction in the cash reserve ratio.

"I think Governor is also aware of the issues about liquidity and tomorrow is the monetary policy. I am sure he will address the issue of liquidity," he said on Monday after meeting the heads of state run banks.

The RBI is widely expected to cut the repo rate by 25 basis points on Tuesday as pressure mounts on it to support the struggling economy. The Indian economy expanded at a 25-quarter low of 4.5% in October-December quarter, and the 2.4% rise in industrial production in January after two months of contraction suggests the recovery is still weak.

The State Bank of IndiaBSE 0.24 %, the country's biggest bank, also backed Chidambaram and called for steep cuts a day ahead of the policy.

"We have requested 50 basis points in CRR and 0.50% cut in Repo. We have also requested to increase the export credit refinance which is currently 50% of the rupee credit. We have requested them to increase it to 100%," said SBI's Chairman Pratip Chaudhuri.

CRR refers to the portion of deposits banks have to mandatorily park with the RBI and the main tool through which the central bank manages liquidity.

It is currently at 4%. Other influential voices in the government have also said that there was room for monetary easing after core inflation, a measure of demand, dropped to below 4% in February and the government is widely seen to have delivered on fiscal consolidation.

"The space for monetary authorities has been created both by the budget and by the way inflation has behaved," C Rangarajan, chairman, prime minister's economic advisory council, told ET in a interview on Monday. Finance ministry officials have been rather more direct in seeking a reduction in rates.

"We believe that the RBI will do a comprehensive and nuanced analysis of the economy and take the right decision and we hope it will vote for growth," Department of Economic Affairs Secretary Arvind Mayaram said after inflation numbers for February were released on Thursday.

In January, the RBI had cut its policy rates by 25 basis points to 7.75%, the first in nine months, but said further rate cuts would depend on how inflation behaved and the measures to cut the fiscal deficit.

Inflation rose marginally in February because of pricier fuel and food, but core inflation moderated to below 4%.


Source : economictimes.indiatimes.com