RBI will ensure liquidity in banking system: RBI Chief, D Subbarao

KOLKATA: The RBI will take all steps needed to ensure there is adequate liquidity in the banking system, its chief said on Thursday, even as he declined to comment on the possibility of lowering CRR to ease tight cash conditions. "There is liquidity constraint across the system or certainly for certain banks," D Subbarao told reporters after a RBI board meeting in Kolkata.

"So as necessary, we will take appropriate measures to see that the liquidity situation is eased," he said.

The cash crunch, currently hovering around 1 lakh crore, is above RBI's comfort zone of 1% of the total deposits in the banking system, which roughly translates to 60,000 crore at current levels. The RBI has bought back 24,300 crore of bonds out of a targeted 30,000 crore.

RBI has once again batted for FDI in retail. Subbarao said FDI in retail would have had a softening impact on food prices and helped the country contain inflation.

"FDI in retail is certainly important by way of getting more FDI into the country. There is no doubt about it. It is also important by way of combating inflation," Subbarao said in Kolkata. However, bond dealers are hoping the RBI will use the cash reserve ratio, or the proportion of deposits that banks need to set aside with the central bank as cash, as a more potent tool to bring in liquidity.