 "Gokarn says there's room for a CRR cut, but will it happen this month?")
There is still room for the Reserve Bank of India (RBI) to cut the cash reserve ratio (CRR) for banks, RBI Deputy Governor Subir Gokarn said in an interview to CNBC-TV18.
“When the space opened up for CRR cut, we used it,” he said. “That space still exists, and so if we think it is appropriate we will use it.”
He added that the central bank will ensure that any steps it takes to address liquidity tightness in the banking system will not destabilise markets.
Gokarn, who handles the monetary policy at the RBI, said overnight cash rates were under some pressure, but the rise was not dramatic.
The RBI cut the CRR, or the proportion of deposits that banks must maintain with the central bank, by 50 basis points to 5.5 percent on January 24 but kept its key policy rate unchanged.
The RBI will next review monetary policy on March 15. The CRR cut in January is estimated to have released Rs 32,000 crore into the banking system.
Meanwhile, banking stocks were trading lower this morning on fears that their bad loans could increase in a slowing economy. Shares of banks are under pressure on receding hopes of an interest rate cut in the RBI policy review on 15 March 2012. Experts believe that rising crude prices could force the central bank to maintain status quo, on fears inflation may move up again. A cut in interest rates would have helped boost credit demand for banks.
On a daily basis banks are borrowing nearly Rs 1.9 lakh crore from the RBI for an overnight period. There is ultra short-term liquidity crunch but longer term rates are falling, for want of demand for loans.
In order to tackle short-term liquidity deficit, a CRR cut and more open market operations to “swap foreign securities”, is necessary said Ashima Goyal from IGIDR in an interview to CNBC-TV18. She added that a cut in CRR is not going to lead to excess liquidity or a rise in aggregate demand overnight. It will take several quarters to get the desired result.
Watch video:
Agencies
 "How far ‘doves’ can fly: Lesson from Japanese economy")
 "CloudSEK alerts Indian agencies of app Chinese handlers use to manage Indian scammers")
 "Bankers, other likely buyers of Paytm Payments Bank want to redo KYC of all merchants, vendors")
 "What is e-rupee? How does RBI plan to use it in offline mode?")
 "How far ‘doves’ can fly: Lesson from Japanese economy")
 "CloudSEK alerts Indian agencies of app Chinese handlers use to manage Indian scammers")
 "Bankers, other likely buyers of Paytm Payments Bank want to redo KYC of all merchants, vendors")
 "What is e-rupee? How does RBI plan to use it in offline mode?")