Liquidity situation to improve from Q4: Rangarajan

The Prime Ministers advisory panel today said liquidity,in short supply because of a slew of public issues and busy credit season.

The Prime Ministers advisory panel today said liquidity,in short supply because of a slew of public issues and busy credit season,will improve once the government expenditure accelerates from the next month.

Speaking to reporters on the sidelines of the annual bankers meet here,PMs Economic Advisory Council (PMEAC) chairman C Rangarajan also said RBI will continue to take measures to improve money supply in the system. I do think,that in the second half of this fiscal,and particularly in the last quarter,public spending will increase,and as a consequence of this,the liquidity situation in the system will improve, he said on the sidelines of the annual bankers meet here.

I think the RBI will take necessary steps to ensure that adequate liquidity is present in the system, said Rangarajan,who is former central bank governor.

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The PMEAC chairman forecast inflation to fall to 6.5 per cent by end of this month from 8.58 per cent in October,on the back of decline in rate of price rise in food items. We are getting data that food inflation is falling. Primary articles data also suggest the same. If this trend persists through the rest of the month,inflation will fall to 6.5 per cent by the end of the month, he said.

Food inflation fell to single digit to 8.6 per cent during the week ended November 20 from 10.15 per cent in the previous week. In the second supplementary demand for grants,the government has got Parliament nod to spend additional expenditure of close to Rs 20,000 crore over Budget estimates.

Earlier,it had got similar approval to spend additional over Rs 54,000 crore. To help banks tide over the liquidity shortage,RBI had earlier this week allowed banks to borrow funds from it,even if they miss mandatory requirement to keep 25 per cent of their deposits in government bonds by 2 per cent. For this purpose,RBI will continue to conduct special Liquidity Adjustment Facility. RBI announced these measures on fears of tightening of liquidity in the coming weeks due to expected pick up in credit offtake and lining up of IPOs.

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