Liquidity not a problem: Subbarao (Lead)

October 14th, 2008 - 10:49 pm ICT by IANS  

New Delhi, Oct 14 (IANS) Reserve Bank of India (RBI) Governor D. Subbarao Tuesday said that the liquidity problem had been adequately addressed, even as Rs.200 billion ($4.18 billion) was committed for the mutual funds industry.”Liquidity situation is comfortable. Everything is under control,” Subbarao told reporters after meeting Finance Minister P. Chidambaram Tuesday evening at the North Block, the seat of India’s finance ministry.

He said he discussed the current financial situation with Chidambaram, and later met Prime Minister Manmohan Singh and apprised him of the steps taken so far to tame the crisis.

His meeting with the finance minister, which was attended by senior officials, lasted nearly an hour, where they discussed the impact of measures taken so far and if there was the need for more measures to cushion India from the ongoing global financial crisis.

He said the call money rate (CMR) at which commercial banks borrow from each other was going down. It was at over 24 percent last Friday.

Subbarao was in Washington over the weekend for the annual meeting of the International Monetary Fund (IMF).

Earlier, Chidambaram said it was brought to the notice of the government Monday evening that some mutual funds faced stress in liquidity in meeting redemption requirements in respect of debt instruments and money market instruments.

“Consequently, the government requested the Securities and Exchange Board of India (SEBI) and the RBI to meet and address the issue,” he said, adding the meeting had resulted in the central bank releasing another Rs.200 billion.

The RBI has said it would conduct a special 14-day repo (repurchase of securities) at a coupon rate of nine percent for a notified amount of Rs.200 billion to enable banks meet the liquidity requirements of mutual funds.

The banking regulator had earlier reserved the right to conduct such auctions - where government securities are bought back to release cash into the financial system - depending on market conditions.

The RBI has also asked commercial banks not to withhold working capital requirement of small and medium enterprises, especially where the amounts were previously approved based on prudent norms and their creditworthiness.

According to Chidambaram, the US and the European bourses closed on a strong note last night, while those in East Asian markets opened on a bright note Tuesday.

“It appears that the measures announced by various governments and central banks have not only infused greater liquidity into the markets but also helped restore confidence to a significant degree,” he said.

“I hope that the same sense of optimism and confidence will be visible in the Indian markets too,” the minister added.

The Indian markets have thus far reacted positively to the developments, with a key equities index ruling at 11,827.52 points at noon, with a gain of 518.43 points, or 4.58 percent, over the previous close.

His comments, along with the positive developments in the global markets, lifted a key Indian equities index by nearly 800 points, or over seven percent Monday with the mood getting a further boost with calming statements by a panel on liquidity crisis chaired by Finance Secretary Arun Ramanathan.

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