RBI raises cash reserve ratio to 6.0 per cent

13 February 2007

Concerned by accelerating inflation, the Reserve Bank of India today announced its decision to raise the cash reserve ratio (CRR), the second in two months, by 50 basis points, to 6 per cent in two stages, the first on 17 February and the second on 3 March.

CRR is the cash banks have to keep with the RBI on deposit.

A statement from the bank said, "In view of the paramount need to contain inflation expectations and in the light of liquidity conditions, it has been decided to increase the CRR ... by one half of one percentage point ... in two stages."

RBI expects to curb bank funds to the extent of Rs14,000 crore from flowing in to the market.

On 31 January, announcing the quarterly review of the monetary policy, RBI had raised its main lending rate taking it to 7.5 per cent to control inflation and keep the credit growth from rising above around 30 per cent.