Economy watch

Liquidity in the Indian system

Status: Rs 83,781 crore in March 2007.

Impact: Rising liquidity in the system is not only fuelling inflationary pressures, but also creating monetary management problems for the central bank. In fact, the recent interest rate hikes by RBI are aimed at sucking out the excess liquidity which was finding its way into speculative areas.

FII inflows

Status: Rs 3,959 crore in May 2007.

Impact: Rising inflows augur well for the stock markets in particular and economy in general as they help strengthen the rupee against the US dollar and beef up foreign exchange reserves. However, they also increase liquidity and fuel inflation.

(By Compiled by Anand Adhikari)