Reserve Bank will act swiftly if necessary: Chidambaram (Lead)

October 24th, 2008 - 8:37 pm ICT by IANS  

New Delhi, Oct 24 (IANS) Faced with a highly volatile capital market, Finance Minister P. Chidambaram Friday said the Reserve Bank of India (RBI) will act swiftly if necessary to maintain financial stability.Stressing that India’s economic fundamentals were strong, Chidambaram said: “RBI will act swiftly as and when necessary to maintain financial stability.”

He had Thursday advised investors against panic selling.

RBI, India’s central bank, Friday unveiled the country’s mid-term review report, projecting an economic growth of 7.5-8 percent in the current fiscal, close to the 7.7 percent projected by the Prime Minister’s Economic Advisory Council recently.

Chidambaram said the government was open to adopting unconventional measures to maintain financial stability, but he did not specify such measures.

“To manage financial stability and sustaining growth, we have to adopt unconventional measures, if necessary,” the finance minister told reporters here, adding RBI would step in whenever necessary to ensure this.

“Our financial system is strong, our economic fundamentals are strong. RBI has endorsed the assessment.”

Chidambaram said India was not the cause of the global financial crisis but wanted to be a part of the solution to the problem. “We are faced with the ripples of the global effect.”

He said the RBI’s assessment was along the expected lines for the government, whereas the central bank has not “touched the repo rate, reverse repo rate or the bank rate or cash reserve ratio”.

The finance minister said the RBI had taken a number of measures between Oct 6 and Oct 20 to pump in liquidity in the system to address the problem of liquidity crunch.

India’s apex bank has reduced cash reserve ratio (CRR) or the minimum balance a bank has to keep with RBI against deposits by 250 basis points to infuse Rs.1,000 billion into the system.

Indian equities markets Friday finished deep in the red. The benchmark 30-share sensitive index (Sensex) of the Bombay Stock Exchange closed at 8,701.07, down 1,070.63 percent or 10.96 percent from its previous close Thursday at 9,771.70 points.

Industry chambers have asked for measures to unlock more liquidity in the system.

The Federation of Indian Chambers of Commerce and Industry (Ficci), a leading industry group, has sought a further cut in CRR from 6.5 percent at present to 4.5 percent, and repo rate or the rate at which RBI lends money to a bank by 50 basis points to 5 percent.

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