ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Controlling Credit

SKETCHING the background to its monetary policies, the Reserve Bank of India drew attention in its annual report for 1988-89 to the practice which has grown over the years of the entire budget deficit of the central government being financed by the Reserve Bank, leading to the automatic monetarisation of the deficit. This is in addition to whatever support the Reserve Bank is called upon to provide to the government's market borrowing programme. The Reserve Bank has therefore to address itself continually to the task of neutralising, to the extent possible, the expansionary impact of the budgetary deficits. The rising liquidity of the banking sector resulting from the expansion of reserve money has to be continuously mopped up. The credit policy changes announced this week on the eve of the conventional busy season seem to be yet another attempt at containing liquidity in the banking sector.

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