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More liquidity tightening needed says PM advisor

Created by : Esha Johar, Risk Analyst, Irevna  | 01 05 2010 11:38:04 +0000
Industry : Equity Research/AnalyticsFunctional Area : India(Markets)
Keywords : indian economy liquidity cash flow liquidity tightening more liquidity
Activity:  159 views;  last activity : 07 06 2010 20:18:09 +0000

An adjustment in Indian policy interest rates is not warranted at the moment but liquidity tightening may be needed, the prime minister's economic adviser, C. Rangarajan, told a news channel.

The Reserve Bank of India is set to hold its quarterly monetary policy review on Jan. 29 and is widely expected to tighten cash reserve ratio (CRR) requirements for banks, with economists divided on when the central bank will raise policy rates.  So, what do you think people, should there be more cash flow in the market or should there be liquidity tightening at the moment?. Do share your views.

  
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More cash flow Vs More liquidity tightening
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One cannot be so sure whether there should be more tightening or loosening of the economy. All the data remain with the RBI, like inflation, unemployment, the general level of living standards of citizen, investment climate, risk to those who have already in the investment mode who will be hurt by too much tightening etc; etc;.

If the political will is random then they will generaly take a holistic decision, look around a bit and see how things are shaping up around the globe and do something symmetrical to that, in which case they might tighten the economy. Otherwise if they are under "confirmity bias" which may be the above situation with some "anchoring", the anchor being the recent turmoil, to avoid ciritcism from general public they might tighten. If the political will is virtuous then they might not tighten, they will run it as an ongoing basis, considering the contingent claim needs of the citizen and Capital investors.
By Mathew Cherian, Research Associate/Analyst, Western Michigan University  01 05 2010 17:45:49 +0000
 
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So many money is floting here and there .. the industries with stimulus packages, the contractors for better Govt. spendings, the salary earners for revesion of pays, the Cinema-ppl for hits in box-offices, the middle-men and commission agents, the brokers and punters or higher indexes.

Black money running a parrarel economy .. !! Liquidityerywhery where .. !! AND .. the common man with more lower earnings or un-employments facing the price rise. All the income is being spend for food and nothing else. Thus .. liquidity tigtening is just warranted ... !! May RBI seat idle ?
By ASOKE KUSARI, Domestic Private Banking-Executive/Manager, A large leading PSU Bank - India  01 06 2010 17:44:54 +0000
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More cash flow certainly. but also to put in place inflation control which can be done by alternate mechanisms also.
By Sanjay Chaudhary, Former GM-Global Business, Reliance Communications Limited  | 01 06 2010 10:21:29 +0000
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I dont think this is the right time to put the pressure on money flow by tightening the CRR rate as it will not going to helpful for the country as well as for the general public..if we see the CRR rates are already under control and I dont think that RBI should interfere in it..due to recession people were already under pressure and no one was willing to release the money in the market which had badly affected both the customer as well as the market...now the economy is in revival mode and people are coming with cautious mood in the market again..they hve started investing in the market , real estate and other sectors but with very little percen keeping in view how the market will perform in the coming days and wht happ to thier money..
By Ravinder Pundir, Sr. Consultant/Business Analyst, Cisco Systems  | 01 05 2010 12:34:51 +0000
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I don't think tightening of rates is warranted, we have been seeing all along that CRR hike ought to precede any rate tightening. While credit pick up has been seen in recent fortnights, the current liquidity overhang has room for some correction. And too much liquidity in the system than required in a way distorts pricing in financial markets to some extent, but then there should be a balance.
By Esha Johar, Risk Analyst, Irevna  | 01 05 2010 11:38:04 +0000
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Esha, like you mentioned there should be balance, I think the liquidity tigtening should be carried out as a slow and gradual process. I think it is good time to start the process now. Delaying it might get inflation out of control and than you have to fight another set of issues.
By Arup Chakraborty, Managing Consultant  | 01 08 2010 21:49:28 +0000
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To contain Inflation..few key parameters need to be tightened...
By suchita Ambardekar, Director on Board, Vir Rubber Products Pvt Ltd, Vir auto enterprises Pvt Ltd  | 01 07 2010 06:31:18 +0000
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I feel the stimulus package has to be taken back if not today then tomorrow but how will this be done is the biggest question to be asked. Its always better to take back in installments than in one shot due to intense pressure. Therefore, i feel this step of hiking the CRR should be a starting step at this point in time but should not be hiked to much extent which hinders the interest of the investors or the economy growth. I feel this step should be encouraged and a small change in CRR should be in the picture of the RBI. ..... Thank you, Manish N

Cheers!!
By Manish N Chugh, Officer Trainee, Stock Holding Corporation of India ltd.,  | 01 06 2010 06:50:39 +0000
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