The Indian money market distributes a wide range of instruments having maturity say less than one year, issued by the government, banks and corporates of different credit rating and traded in markets of varying liquidity. The interviewee expresses his views on the present scenario of the Indian money markets to Treasury Management.

The Reserve Bank of India (RBI) uses the Cash Reserve Ratio (CRR) to squeeze liquidity when several committees did not favor it. Is it that the RBI is constrained to conduct the monetary policies only through CRR route as against limited Government of Indai (GoI) holdings when compared to the past? Please comment.

As the Central Bank and monetary authority of the country, the RBI is primarily responsible for containing inflation, ensuring adequate liquidity and keeping a check on the money circulation in the system. Initially, inflation was hovering around 5 to 5.50% levels which has now alarmingly shot beyond 6% level, causing serious concern to the RBI. In fact, the RBI in its recent statements has expressed its revised inflation target to be around 4 to 4.5% levels.

Apart from this the unprecedented growth in credit beyond the expected levels channelized to sectors like real estate, has prompted the RBI to hike CRR, coupled with several other liquidity and interest rate tightening measures like increasing the absorption by way of Market Stabilization Scheme (MSS) bonds, hiking repo rates, limiting acceptance of repo amount, etc., in the recent times. The RBI has resorted to these measures as they will have permanent and/or long-lasting effects on the liquidity and cost of the available funds to the banks, thereby achieving the desired results.

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