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September 2009

Subbarao spells out RBI’s five big challenges

By Raman Jokhakar, Tarunkumar Singhal, Chartered Accountants
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  1. Subbarao spells out RBI’s five big challenges

The first challenge is managing the balance between the
short-term compulsions of providing ample liquidity to the market and the
potential for an inflationary pressure.

The second challenge is to manage “the Government’s large
borrowing programme without crowding out present or potential private credit
demand’’. Despite active liquidity management by the central bank, Government
borrowing has led to hardening of yields. The third challenge is to maintain
policy rates and liquidity conditions that could spur private investment
demand. Having a fiscal consolidation process with a concrete roadmap was also
a challenge before the RBI.

“Large fiscal deficits, if continued strictly beyond the
recovery period, can crowd out private investment and trigger inflationary
pressures”. “It is also necessary to focus on the quality of fiscal adjustment
while pursuing quantitative targets’’.

For the medium-term, the challenge was to improve the
country’s investment climate to move forward with financial sector reforms “to
promote financial inclusion, further widen and deepen financial markets and
strengthen financial institutions’’.

(Source : The Times of India, 22-7-2009)

 

 

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