Here comes the SHOT in the ARM......

Taken from today's ET:
More measures in works to inject liquidity, promises PC
As Global Crisis Threatens India, Govt Goes Into Overdrive To Insulate Economy & Assure Investors
Our Bureau NEW DELHI
THE high-level liquidity panel on Monday closely examined a slew of options including cuts in cash reserve ratio (CRR), statutory liquidity ratio (SLR), government securities or gold, and interest rate cut to tide over the liquidity crisis. Innovative measures taken in other countries like providing guarantees to deposits and borrowings of banks was also discussed by the panel chaired by finance secretary Arun Ramanathan. Earlier in the day, finance minister P Chidambaram also promised more measures to infuse liquidity into the system. “We have shared thoughts on what are the requirements. We need to address the liquidity demand,” finance secretary Arun Ramanathan said. The committee is expected to meet again in two days in Mumbai with some industry experts to chart out its final recommendations. It will submit an interim report to the finance minister in a week’s time, Mr Ramanathan said. The panel, which was set up last Friday to assess the requirements of liquidity and advise the government, discussed the situation in the global markets and the actions taken by various governments and central banks. The meeting was attended by Indian Banks Association chairman T S Narayanaswami, UTI CMD U K Sinha, L&T CFO Y M Deosthalee, and Sidbi CMD R M Malla and other finance ministry officials. The committee also felt more steps were needed to address the current cash crunch faced by the system, sources said. Earlier, Mr Chidambaram advised investors not to act in haste. “Our banks are ready and willing to provide credit. Suitable advisories are being issued to the banks. We will respond swiftly according to the needs of the situation. We are working on measures that will infuse liquidity, make credit intermediation smoother and increase the confidence of depositors and investors. We hope to be able to announce them shortly,” he said. Shortly, after the minister’s statement, stock markets jumped 450 points to close 781 points up. RBI’s moves has already infused Rs 60,000 crore liquidity into the financial system. An additional Rs 91,500 crore liquidity adjustment facility is available with RBI to ease the shortage, if required. Mr Chidambaram said the government, RBI and Sebi were watching the situation carefully and coordinating their actions. The RBI had cut CRR by 150 basis points on October 11. The central bank had also decided to defer the auction of government’s bonds of Rs 10,000 crore under its annual borrowing plan, to avoid sucking out liquidity from the system. “We must remain confident and respond to the situation in a cool and mature manner. Especially depositors have nothing to fear because their deposits in banks are safe. Investors must take informed decisions. Before you sell, you must remember that for every seller there is a buyer. You must ask yourself why the buyer is buying in these times of perceived uncertainty and, therefore, ask yourself the further question whether there is a need to act in haste or in panic. In my view, there is no reason at all to act in haste or to give room for panic,” the minister said. Mr Chidambaram said reports of some mutual funds facing redemption pressures were untrue. The root cause of the present uncertainty was liquidity and not any dramatic change in the fundamentals of the economy, he said. “Liquidity was found to be inadequate and, consequently, lenders were unwilling to take risks. Some lenders and investors faced redemption pressures leading to a sale of assets, especially stocks. The markets that are bearing the problem are the capital market and the money market and, to an extent, the foreign exchange market. These problems can be overcome if adequate liquidity is infused into the system,“ he said. “If all the players in the economy remain confident and take informed decisions, I have no doubt that the Indian economy will weather the current storm and emerge stronger,” he said. On growth prospects in the current fiscal, he said: “The economy continues to grow at a satisfactory rate” and quoted a paper by IMF research department which has forecast a growth of 7.9% in the current fiscal. He said though the stock market indices are important indicators, “they are not the only indicators of the health of Indian economy. The ratio of investment to GDP remains high at over 35% at the end of first quarter of 2008-09. We’ve had a good monsoon and kharif crop and the prospects for Rabi crop also look good.” Pointing at the dip in crude and commodity prices, he said it was expected to have a beneficial impact on inflation.

My Commnets:
What I have highlighted in RED and BLUE bold letter is exactly what I have talked in my previous post on RBI decision and action.Now ,what YV Reddy did all wrong, is getting reversed by new RBI governor and they had no other option then that.
Just try to read what I have highlighted and one will get to understand.... At the outset the sentence"The high level liquidity panel "itself shows the urgency of the matter.....
I very categorically stated that there was no need for CRR hike in last 3 months when the liquidity was sucked out through the selling of FII's and here comes the SHOT from our Finance Minister.
Atlast some sane thinking has happened and government was able to see the things in correct way.
Rs60,000 cr is now infused in the money market and Rs 91000 cr is ready if needed.Let us see what happens now and how market reacts and how players play.......