RBI's move to help SMEs to get affordable credit

NEW DELHI: The Reserve Bank has addressed the problem of affordable credit for small and medium enterprises by cutting reserve ratios and short term lending rate, Repo, the Prime Minister's economic panel said on Saturday.

"Credit was getting costlier for SMEs as large companies were managing from their internals. From the cut, their problem has been addressed," Prime Minister's Economic Advisory Council Chairman Suresh Tendulkar said.

He said liquidity was getting tighter last week, prompting RBI to inject additional liquidity.

Inter-bank call money rates have jumped last week on tighter money supply. The rates closed at 17.5-18 per cent in the weekend.

"I think last week liqudity position was getting tighter, quite clearly. It was necessary therefore to that additonal liquidity is injected into the system. So the cut is a right move," Tendulkar said.

He said the rates cut will not fuel inflation as prices were the problem on the cost side and by the rate cut the costs are expected to come down.

"Demand is there. The problem was cost side, so by the rate cut the costs are expected to come down. International commodity prices are also coming down. So the rate cut will not impact inflation," the noted economist said.

He said the panel's forecast of economic growth rate would remain unchanged at 7.7 per cent so far and it remains unchanged. We may relook at it after looking at FDI and other figures.

Rajiv Kumar, Director of economic think-tank ICRIER, said along with improving the investment sentiments, the RBI measures will boost growth, which has slowed down.