Tightness in cash situation in banking system temporary:Rakesh Mohan

Kolkata, Dec 21 (UNI) Reserve Bank of India (RBI) deputy governor Rakesh Mohan today said the tightness in the cash situation in the banking system was temporary.

''Because of December tax outflows and Cash Reserve Ratio (CRR) impact, there is temporary tightness in liquidity,'' Mr Mohan said.

He said he expected the overall liquidity by the end of March to be the same as the year before.

''After tax outflows it takes time for expenditure to take place.

I don't see much change in liquidity,'' he said.

The deputy governor said he expected cash in circulation in the banking system to remain between Rs 80,000 crore to Rs 1,00,000 crore by fiscal end.

The cash circulation in the banking system had shrunk significantly over the past two weeks due to estimated outflows toward quarterly payments of corporate taxes.

Earlier in December, the central bank announced an increase in the CRR to check inflationary pressures. The ratio would be raised to 5.50 per cent in two stages of 25 basis points each on December 23 and January 6.

However, Mr Mohan declined to comment when asked whether the reverse repo rate, which is the rate at which the RBI absorbs excess funds, would be increased.

Mohan said the government had already taken measures to keep inflation within the central bank's estimated range.

He said the central bank would take the required policy measures to keep inflation between 5 per cent to 5.5 per cent till the end of the fiscal.

''We have said in our mid-term review, we are keeping to our expectations of 5.0-5.5 per cent inflation towards the end of the year. We also said certain policy measures would be required to do that. We have done what we had said. Inflation expectations would be contained,'' he said.

Mohan was speaking to reporters after a meeting of the Central Board of RBI here.

The meeting was attended by Governor Y V Reddy, Economic Affairs secretary Ashok Kumar Jha and deputy governor V Leeladhar among others.

The Central Board of RBI reviewed the key economic, monetary and financial developments in the meeting.

UNI JYN KK DB1912