19 January,2009 04:40 PM IST | | PTI
The proposed rise in the government borrowing and the subsequent hike in spending is likely to put some pressure on liquidity in the system in the fourth quarter of this fiscal, an economic think-tank has forecast.
"The government has sanctioned an additional Rs 1,48,093- crore over and above the budget estimate. The last quarter of the current fiscal is expected to see Rs 35,000-crore borrowing through dated securities.
This projected increase is expected to keep up some pressure on liquidity during the next three months," Centre for Monitoring Indian Economy (CMIE), said in its report.
A substantial expected increase in the Treasury Bill flotation could also contribute to an already tightening liquidity situation, the report said.
The acute liquidity crunch witnessed by the Indian banking system seems to have eased off substantially following the swift and strong measures announced by the Reserve Bank on January 2, the report said.
However, "we fear that the condition may tighten again in the coming months because of the proposed increase in the government spending, and therefore, borrowing", it added.
The RBI, had, on January 2, announced three major steps aimed at improving the liquidity in the system.
These included a 0.50 per cent cut in cash reserve ratio (CRR) with effect from January 17, a 1 per cent reduction in the reverse repo rate with immediate effect and slashing of the repo rate by 1 per cent from 6.5 per cent to 5.5 per cent.
