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|February 23, 2001||Feedback|
IMDs helped RBI pare monetised deficit
The Economic Survey has attributed the sudden spurt in money supply during the year to ''unsterilised'' foreign exchange intervention by the Reserve Bank of India through purchase of State Bank's India Millennium Deposits for meeting large borrowing requirements of government.
''Given the large borrowing requirements of the Central government and the greater flow of credit to commercial sector, it was necessary to ensure adequate liquidity through such intervention,'' the survey for 2000-01 said in its report tabled in Parliament on Friday.
''There was a sudden increase in broad money growth in November, 2000, on account of the unsterilised foreign exchange intervention by the Reserve Bank through the purchase of IMDs from the State Bank of India,'' it said.
It said generation of liquidity via IMDs enabled RBI to reduce monetised deficit by offloading the central government's dated securities in its portfolio to the market.
''Thus RBI could minimise the impact of IMDs on growth in money supply,'' it said, adding that the year-on-year growth in broad money at 15.8 per cent as on January 12, 20001, was well below the long-run growth rate of around 17 per cent.
Besides reducing the pressure on the rupee in the foreign exchange market, IMDs could avert upward pressure on interest rates, said the survey.