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Commentary

RBI Cuts CRR another 1%, and still needs to pump cash

RBI cuts CRR by another 1%. This will add 60,000 cr. of liquidity into the banking system.

From the weekly supplement, it looks like RBI sold about $7.8 billion in a week (till last week). They’ve sold $25 billion since end March. That’s about 100,000 cr. Which means the CRR cut is only 60% adequate.

They probably need to cut repo hard too. Still, that won’t make a difference to liquidity. Most importantly they need to force the oil marketers to cut prices – which as private entities they will be loath to do. They are nearly bankrupt anyhow. So nationalise them and buy out all their shares from the market, fully capitalize them with the rupees you bought when you sold the dollar, and set the oil pricing mechanism right. I’m sure the prices will be brought down well before elections, but just enough so people remember.

So how to get rupees back into the system? Can you believe this is a problem? Just 10 months ago they were squeezing liquidity out. Soon, we’ll have to tackle deflation.