Dr Subbarao also said that the sudden and rapid expansion of government borrowing programme has impeded monetary transmission. Last year, the final net government borrowing was two-and-a-half times the Budget Estimate. This year’s budgeted borrowing is going to be at least a third higher than that. “The intent behind RBI’s monetary easing was to encourage banks to reduce le
nding rates and maintain the flow of credit to the productive sectors. But government borrowing had resulted in firming up of yields, notwithstanding the substantial excess liquidity, militating against the low interest rate regime that we want,” he said. Delicate balance Dr Subbarao said that the RBI will this year again have to manage the delicate balance between government borrowing and maintaining ample liquidity to meet the demand for private credit as it picks up in the months ahead. “We will follow the same open, transparent and consultative process as we did last year,” he said. Following the full outbreak of the global financial crisis in September 2008, the RBI had sharply reversed its monetary stance from ‘tightenting’ to ‘easing’. The monetary stimulus came through a sharp reduction in the policy interest rates and the cash reserve ratio, reduced pre-emption of bank resources through the statutory liquidity ratio and expansion of refinance facilities for banks, some of which were sector specific. The potential liquidity made available by the RBI as a result of these measures amounted to Rs 5,60,000 crore, or nearly 9 per cent of GDP.
For further details visit as : www.thehindubusinessline.com/2009/08/01/stories/2009080151630600.htm
nding rates and maintain the flow of credit to the productive sectors. But government borrowing had resulted in firming up of yields, notwithstanding the substantial excess liquidity, militating against the low interest rate regime that we want,” he said. Delicate balance Dr Subbarao said that the RBI will this year again have to manage the delicate balance between government borrowing and maintaining ample liquidity to meet the demand for private credit as it picks up in the months ahead. “We will follow the same open, transparent and consultative process as we did last year,” he said. Following the full outbreak of the global financial crisis in September 2008, the RBI had sharply reversed its monetary stance from ‘tightenting’ to ‘easing’. The monetary stimulus came through a sharp reduction in the policy interest rates and the cash reserve ratio, reduced pre-emption of bank resources through the statutory liquidity ratio and expansion of refinance facilities for banks, some of which were sector specific. The potential liquidity made available by the RBI as a result of these measures amounted to Rs 5,60,000 crore, or nearly 9 per cent of GDP.For further details visit as : www.thehindubusinessline.com/2009/08/01/stories/2009080151630600.htm
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