PM reviews financial situation with FM and RBI

In a desperate attempt to save the Indian economy from the impact of global financial crisis, Prime Minister Manmohan Singh reviewed the financial situation with Finance Minister P Chidambaram and RBI Governor D Subbarao late on Tuesday.

The key policy makers discussed the financial situation with particular reference to liquidity measures and the steps taken so far to contain liquidity. The Deputy Chairman of the Planning Commission Montek Singh Ahluwalia and Finance Secretary Arun Ramanathan, who is heading a panel to suggest liquidity boosters, were also present at the meeting held at Prime Minister’s Race Course residence.

The meeting is viewed as a signal for further announcements from the RBI to alleviate liquidity pressure.

Last week RBI announced to cut CRR (Cash Reserve Ratio) for banks by 150 bps to increase liquidity in the cash starved market. The cut in the CRR rate from 9 to 7.5 percent was calculated to inject whooping Rs 20,000 crore in the economy.

The RBI on Tuesday also imparted an additional Rs 20,000 crore for mutual fund industry and announced a special 14-day repo to enable banks to meet liquidity needs of mutual funds. Mutual funds were facing redemption pressure because of increase in withdrawal demand by the depositors considering financial crisis.

The apex association of banks will consider with the mutual funds industry and jointly fix the appropriate rate at which banks will lend to fund houses such as UTI MF, SBI MF and ICICI-Prudential Mutual Fund.

A meeting of high-level bankers and experts group led by Finance Secretary Arun Ramanathan is scheduled for Wednesday.

Although no official words divulged details of the meeting but it is expected that a slew of measures will be taken to contain liquidity pressure.

A cut in the repo rate (rate at which banks borrow rupees from RBI) is also expected when Subba Rao will present mid-year monetary policy review on October 24.

As Finance Minister also said measures will be taken to ease inter-banking lending that still remains constrained and it is necessary to overcome these constraints. Government and RBI are agreed on the measures that have to be taken immediately, he said.

Earlier on Tuesday, before calling on Prime Minister, Subbarao met with Chidambaram to maintain proper coordination between RBI and the government.

“We have reviewed the entire situation. The situation is quite comfortable. We believe everything is under control. I cannot tell you what measures are going to come. We have done everything that had to be done,” said Subbarao, the RBI governor after the meeting.