The Reserve Bank of India indicated it was not in a hurry to hike the cash reserve ratio since it may send wrong signals on the central banks monetary stance. CRR is the percentage of deposits banks have to keep with the RBI. It stands at 6 per cent now. Talking to reporters on the sidelines of an international conference organised by the ministry of finance and economic think tank,NIPFP,Subir Gokarn,deputy governor,RBI,said,We dont want to give a signal that we are changing our monetary stance. We have been using instruments that will give us control on short term liquidity without compromising on monetary stance. The recent cut in the statutory liquidity ratio (SLR) to 23 per cent,for instance,was primarily to address liquidity constraints. A one percentage point cut in SLR releases about Rs 45,000 crore into the system. There is clearly now distinction been made in liquidity management and monetary stance and that will be articulated in the policy, Gokarn said. The central bank is scheduled to present its next review of the monetary policy on December 16. Inflation,though,still remains a point of concern for the bank. Overall inflation is still high. We are seeing that food inflation is starting to look structural in nature. What we are looking at is a demand-supply condition. Appropriate approach is to administer supply side we need the same kind of approach we adopted in 1960s, Gokarn said. He said expectations are so anchored that the food pressure does not cause wider inflation pressures. Actions are meant to prevent inflation from spilling into more wider inflation phenomenon as the economy is reaching the optimum limit. So we need to act accordingly, the deputy governor said. According to him,the RBIs main objective remained price stability and output stability. The RBI has not defined itself as inflation targeter..flexible approach is required in monetary policy.(In India) the approach of the core monetary policy doesnt seem to be influenced by the crisis. The best way to deal with a crisis is through prudential measures rather than monetary measures. Prudential measures are the most effective way of targeting crisis, Gokarn said. He said that the exchange rate was appreciating because India has a balance of payment surplus and not because of the trade deficit. The size of trade deficit is not an indication of a trend. Rupee appreciation remains muted,and real rupee appreciation remains within reach, he said. However,the government and the RBI need to find ways to channel FIIs into long-term investment.
