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.
The
RBI noted that since 31 January the government's annual
GDP growth estimate had risen to 9.2 per cent for the
current financial year ending 31 March, a sharp increase
in industrial output over a year ago, and an increase
in the annual rate of inflation to 6.6 per cent, the highest
in two years.
It
is evident that RBI is concerned by inflation creeping
upwards and is determined to use all the monetary measures
at its command to cool price pressures, as the RBI deputy
governor Rakesh Mohan indicated at a seminar in New Delhi.
According
to Mohan, when an economy underwent structural changes
there could be micro imbalances that lead to excess demand
and overheating. "What bothers us is firming up of
inflation in recent months, which is currently higher
than our projected estimates ... inflation represents
a key concern for us."
He
said both demand-driven and supply-side price pressures
were adding to inflationary pressures. He said, "In
conjunction with strains that we observe in capacity utilisation,
elevated asset prices and surge in demand for bank credit
and the rising price of manufactured products constitute
good evidence of excess demand pressure evident in India,"
Mohan said.
The
challenge, Mohan said, was to manage the transition to
a higher growth path without inflation and inflation expectations
becoming mutually reinforcing. He however added that sustaining
8
to 9 per cent growth in the medium-term appeared "eminently
realisable".
Mohan
also added that food prices had risen due to declining
stocks of food grains and high global prices, which were
reflected in the headline inflation numbers.
|