CRR cut injects liquidity in system not ready to absorb : Economist

Kolkata, Oct 21 (UNI) The Reserve Bank of India (RBI) move to cut Cash Reserve Ratio (CRR) in the country has injected liquidity in the system, which is not ready to absorb.

This observation was made by Prof Abhirup Sarkar of Indian Statistical Institute (Economic Research Unit) while speaking at an interactive session, organised here today by the Merchants' Chamber of Commerce (MCC).

'' It is like injecting a patient with a medicine, which it cannot accept and hence, purged out, '' Prof Sarkar explained.

Stating that it was not clear how long the global financial crisis would linger, Prof Sarkar elaborated that the apex Bank had reduced the CRR when the Banks were reluctant to lend due to uncertainty in the environment.

At the same time, the Banks could not leave the money idle and might end up buying government security, he opined.

'' Thus, the money will flow back to the government, '' he observed.

On the other hand, MCC president Anupam Shah maintained that the cut in CRR from nine per cent to 6.5 per cent was a welcome measure, but he said it was far from adequate.

Mr Shah felt that more liquidity should be put into the system and interest rates should be lowered to ensure that the growth of the economy did not slow down.

'' It is evident that continuous monetary tightening by the RBI to rein in inflation has been hurting the country's growth momentum, '' he noted.

UNI SB SJC/src1923