The RBI should consider lowering Cash Reserve Ratio (CRR) in addition to buying Government bonds to ensure adequate liquidity, an official said on Tuesday.
Concerned over volatility in the stock markets, the Reserve Bank and markets regulator Sebi had on Sunday said they were closely monitoring the developments in the financial sector and were ready to take appropriate actions.
“The RBI has tools like OMO (Open Market Operations) to manage liquidity. Also a CRR cut would ensure immediate liquidity in the market,” the Government official told reporters.
The focus should now be on ensuring adequate liquidity in the system and “not jamming” the credit flow, he added.
CRR, the percentage of deposits that banks have to park with the RBI in cash, currently stands at 4 per cent.
The central bank has kept the CRR unchanged since September 2013.