A cut in the cash reserve ratio (CRR) is not the right tool for liquidity infusion in the medium term, said Upasna Bhardwaj, senior economist at Kotak Mahindra Bank.
Maybe a little more aggressive open market operations (OMO) purchases could be a better tool and at the same time, we need to see how much comfort the Reserve Bank of India (RBI) is with, Bhardwaj said.
Looking at the growing concerns over the liquidity positions of the financial institutions the centre has made a pitch for a cut in the CRR. This is the percentage of deposits that banks have to park with the RBI and it currently stands at 4 percent.
Centre believes that a cut in CRR would ensure immediate inflow of liquidity in the market.
“Undoubtedly the liquidity situation is quite critical at this point in time. There is a need to tackle the tightness in liquidity, so the measures by RBI have to be taken accordingly," Bhardwaj said.