The Reserve Bank of India (RBI) could absorb liquidity?by raising the CRR?from the market before raising interest rates to tame inflation, Prime Minister?s Economic Advisory Council chairman C Rangarajan said here on Thursday. Cash reserve ratio or CRR is the slice of deposits banks need to keep with the RBI.
?I think it is a cause for concern. Whatever may be the factors pushing the prices, overall, inflation rate is certainly a matter for worry,? he said on the sidelines of a summit for release of the book ?India on the growth turnpike,? essays in honour of Vijay Kelkar. The wholesale price index (WPI) inflation rose to 9.89% in February from 8.56% in January. Even though food inflation dipped from 17.81% in the last week of February, it still stood at an elevated level of 16.3% for the week ended March 6.
Speaking at the seminar, the RBI deputy governor KC Chakrabarty said the central bank will take action if warranted. ?If it is inevitable and the price situation warrants so, action can be taken any day,? Chakrabarty said. ?If monetary action is necessary, it will be taken. For that we have to examine reasons of inflation–how much it is due to the supply-side factors and how much is demand-side factors. Based on that action will be taken,? Chakrabarty added.
Meanwhile, the credit rating agency Standard & Poor?s said on Thursday it might not downgrade India?s sovereign credit rating further, after the government announced plans to reduce fiscal deficit. Currently, India?s long term credit rating is at the bottom of the investment grade at BBB-minus. It, though, revised India?s ratings outlook to ?stable? from ?negative?.