India Mulls Steps to Ease Cash Crunch

To address a liquidity shortage in the banking system, India's central bank may lighten bond-holding requirements and purchase back government securities, but won't reduce the cash reserve requirements for banks, reports the Wall Street Journal.


According to the newspaper, the Reserve Bank of India has announced an extra liquidity auction and relaxed bond-holding rules until Dec. 16 to ease the liquidity problem. Several government companies will sell shares over the next few weeks, while firms are also likely to withdraw funds to pay advance quarterly taxes.


Samiran Chakraborty, head of research at Standard Chartered Bank in Mumbai, estimates the liquidity deficit to be 1.4 trillion rupees by the end of the year after the December-quarter tax outgo, unless more bond buybacks or direct liquidity injection measures are announced.




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