The Reserve Bank of India can experiment with the cash reserve ratio (CRR), or the amount of bank deposits parked with the central bank, in the next monetary policy committee (MPC) to current improve liquidity situation, said Ananth Narayan, professor, SPJIMR.

"It is a tricky one obviously with oil prices coming down and with consumer price index (CPI) remaining as soft as the degrees of freedom that policymakers have increased. But I would probably suggest that we need to exercise some caution out here,” Narayan said.

The CRR stands at 4 percent at present and the banks do not earn any interest on it.

Money has to go to certain sectors which are facing stresses Non-Banking Financial Institutions (NBFI) for instances, he said.

"Do we really want the cost of money to come down or we are just ensuring that liquidity is available to them at a particular price at the right price. Now if later is the problem then the solution is to ensure that the banking system has adequate capital to be able to lend money to these sectors at the right price and RBI is making money market liquidity available. If you are saying it not just enough to provide liquidity the overall lending has to go up and we need to bring down interest rates as well. Then, of course, you can bring in a CRR cut question as well. But I suspect we are not there as yet,” Narayan said.

First Published:Nov 21, 2018 7:00 PM IST