No cause for worry: Chidambaram

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No cause for worry: Chidambaram


Finance Minister P. Chidambaram on Monday reasoned that the slump in the bourses during the day was not a worrying factor as the banking stocks, which led the slide, would inch back on the basis of good performance.

Speaking to newspersons here, Mr. Chidambaram noted that the bank stocks declined on account of the hike in the cash reserve ratio (CRR), announced by the Reserve Bank of India (RBI). The central bank's objective, he said, was to moderate credit to rein in inflation.

High inflation

"Inflation is unacceptably high. It should be below five per cent and towards four per cent," the Finance Minister said, while indicating that more steps would be taken, if necessary, to contain the inflationary spiral. The inflation rate, based on the wholesale price index, was pegged at 5.30 per cent during the week ended November 25, as compared to 5.45 per cent in the previous week.

On Monday, even as the Sensex (Bombay sensitive index) slumped by 537.76 points to 13261.73 with all index-based stocks in the red, Mr. Chidambaram said: "There is no need to worry. Stock markets are at their highs. Bank stocks are falling because of [the] CRR hike.''

Last week, the RBI had increased the CRR by 50 basis points to squeeze out Rs. 13,500 crore from the banking system so as to check the growth of credit, which now stands at about 30-31 per cent. Noting that the steps such as hike in interest rates and supply-side management had failed to check the rise in credit growth, Mr Chidambaram said: "The move [CRR increase] should moderate credit growth.''

The current move is expected to contain credit growth, as CRR is the minimum cash that banks are stipulated to park with the RBI in proportion to their deposits.