CRR raised by 75 bps to tighten liquidity..

Consolidation of fiscal deficit (difference between money received and total expenditure) is what suggested by the RBI governor to exit from the expansion mode of monetary policy to avoid over spending and to control easy liquidity. Time and again, third time in less than a year, the RBI has raised the CRR limit to tighten liquidity. Also, this is to reduce the inflation estimate expected to be at 8.5% by March 2010. Growth rate of the economy is projected at 9% by fourth quarter i.e., by end 2010. This is an assumption based on the growth rate of 7.5% by this quarter ending March 2010.

Personally, i was just thinking why not built up the excessive funds within RBI through CRR to create an entity like ‘world bank’ within the country to spend on national projects like infrastructure, highways, healthcare services etc? Instead of giving to fund risk related private sector ventures thereby creating non performing assets! Can this be done?? By having such an entity, we can engage national projects in time but i am not sure whether the nationalized banks will allow this. Will the interest rates in the banks rise in such a case?

There is excess liquidity in the market despite all corrective actions taken by RBI. I am concerned with shooting inflation and food prices.

any opinion?

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