Current CRR level optimal, no reason to move away: Rajan

Mumbai :Reserve Bank Governor Raghuram Rajan today said the current level of cash reserve ratio (CRR) at 4 per cent is ideal and there is no need for any change in it.

“As far as the optimal level of CRR goes, we don’t think there is a strong reason right now to move away from this level,” Rajan said in a post policy concall with analysts and researchers here today.

It could be noted that lenders from long time are demanding a cut in CRR, which they have to keep as reserves with the RBI.
Rajan also said the RBI will be reviewing its entire liquidity framework over the next few months.

On liquidity management, the Governor said RBI will use all instruments including open market operations (OMO) to ensure enough liquidity in the market.

“We have variety of instruments to manage short term liquidity as well as long term liquidity and OMOs is one of them,” he said.
The governor said CRR and OMO are possible inputs to liquidity management.

Earlier in the day, Rajan told reporters that the view that there is enormous liquidity shortage at this point in the banking system is not consistent with the fact.

“Our measure of whether there is enough liquidity is to see whether rates in the call money markets are broadly in line with the policy rates and I think the evidence is that they are,” he had told reporters in the post policy conference.

“We will look at the emerging liquidity needs and use all instruments to manage those,” he had said.

Reserve Bank today left the repo rate unchanged at 6.75 per cent and said a further easing will depend on “structural reforms” in the forthcoming Budget as well as macroeconomic factors.

When asked whether RBI can go for an inter-meeting rate cut, he said such cuts can happen when there is great sense of urgency.
He said sometimes the inter-meeting cuts are to signal a broad change in direction of policy which was when RBI employed it last time.

“We will have to see rationales which are strong for doing it (inter-meeting rate cuts) but I don’t want to either say that we are going to do it or deny the possibility,” Rajan added.